<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 1, 1997.
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
INSYNC SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
CALIFORNIA 1647773 77-0227489
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
1463 CENTRE POINTE DRIVE
MILPITAS, CA 95035
(408) 946-3100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
STANLEY L. LEOPARD, CHIEF EXECUTIVE OFFICER
TERENCE J. GRIFFIN, CHIEF FINANCIAL OFFICER
INSYNC SYSTEMS, INC.
1463 CENTRE POINTE DRIVE
MILPITAS, CA 95035
(408) 946-3100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
FRANK S. CURRIE, ESQ. CARLA S. NEWELL, ESQ.
JOHN T. SHERIDAN, ESQ. BENNETT L. YEE, ESQ.
ANTON COMMISSARIS, ESQ. NANCY M. CHEN, ESQ.
CHRISTOPHER G. NICHOLSON, ESQ. FRANK GRANT, ESQ.
WILSON SONSINI GOODRICH & ROSATI GUNDERSON DETTMER STOUGH VILLENEUVE
PROFESSIONAL CORPORATION FRANKLIN & HACHIGIAN, LLP
650 PAGE MILL ROAD 155 CONSTITUTION DRIVE
PALO ALTO, CA 94304 MENLO PARK, CA 94025
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable following effectiveness of this Registration Statement.
----------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=============================================================================================
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE PRICE(1) FEE
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock................... shares $ $39,000,000 $11,819
=============================================================================================
</TABLE>
(1) Estimated pursuant to Rule 457(a) solely for the purpose of calculating
the registration fee.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
OCTOBER 1, 1997
PROSPECTUS
Shares
[LOGO OF INSYNC SYSTEMS APPEARS HERE]
Common Stock
--------
Of the shares of Common Stock offered hereby, shares are being
sold by Insync Systems, Inc., a California corporation ("Insync" or the
"Company"), and shares are being sold by certain shareholders (the
"Selling Shareholders"). The Company will not receive any of the proceeds from
the sale of shares by the Selling Shareholders. See "Principal and Selling
Shareholders." Prior to this offering (the "Offering"), there has been no
public market for the Common Stock of the Company. It is currently estimated
that the initial public offering price will be between $ and $ per share.
See "Underwriting" for the factors considered in determining the initial public
offering price. Application has been made to have the Common Stock approved for
quotation on the Nasdaq National Market under the symbol "INSY."
--------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=============================================================================================
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.............. $ $ $ $
- ---------------------------------------------------------------------------------------------
Total(3)............... $ $ $ $
=============================================================================================
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."
(2) Before deducting offering expenses estimated at $ payable by the
Company.
(3) The Company and certain of the Selling Shareholders have granted the
Underwriters a 30-day option to purchase in the aggregate up to
additional shares of Common Stock solely to cover over-allotments, if any.
To the extent that the option is exercised, the Underwriters will offer the
additional shares at the Price to Public shown above. If the option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to Company and Proceeds to Selling Shareholders will
be $ , $ , $ and $ , respectively. See "Underwriting."
--------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject
to the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the
offices of BT Alex. Brown Incorporated, Baltimore, Maryland, on or about
, 1997.
BT ALEX. BROWN
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
GAS DELIVERY SYSTEM
[Photograph of a Gas Delivery System
with a person standing adjacent]
[INSYNC LOGO APPEARS HERE]
IGS
[Photograph of the Company's
Integrated Gas System with person
adjacent]
GAS DELIVERY SYSTEMS
Gas delivery systems and
subassemblies are critical to the
operation of deposition, etch and
other semiconductor manufacturing
equipment. The Company manufactures
gas delivery systems and
subassemblies in clean room
production facilities using
specialized manufacturing
techniques.
INTEGRATED GAS SYSTEM
The Company's Integrated Gas System
(IGS) is a modular platform for gas
delivery that is designed to
simplify the specification and
manufacturing process for gas
delivery systems in order to reduce
component inventory requirements,
configuration complexity, cycle time
and overall semiconductor process
equipment costs.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
"Insync" and the Insync logo appearing on the cover page of this Prospectus
are trademarks of the Company. This Prospectus also includes trademarks of
other companies.
2
<PAGE>
[INSYNC LOGO GAS DELIVERY SYSTEMS IN THE FAB
APPEARS HERE]
Gas delivery systems and subassemblies are pervasive throughout the
semiconductor device manufacturing process. The Company's gas delivery systems
and subassemblies are primarily incorporated into deposition, etch and, to a
lesser extent, other semiconductor process equipment. The Company's customers
include four major North American semiconductor equipment manufacturers:
Applied Materials, Lam Research, Novellus Systems and Watkins-Johnson.
[Diagram of a typical Fab floor depicting various manufacturing areas,
highlighting semiconductor process equipment that use gas delivery systems and
subassemblies.]
The Company's gas delivery systems and subassemblies are designed to reduce
contamination in the process chamber and shorten cycle times for equipment
manufacturers, thereby contributing to lower wafer manufacturing costs for
device manufacturers.
Process Equipment Requiring GAS DELIVERY SYSTEMS
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and consolidated financial statements and
notes thereto, appearing elsewhere in this Prospectus. This Prospectus contains
forward-looking statements that involve risks and uncertainties, including
statements regarding strategies, intentions or expectations. The Company's
actual results may differ materially from the results discussed in such
forward-looking statements. Factors that may cause such a difference include,
but are not limited to, those discussed in "Risk Factors."
THE COMPANY
Insync is a leading provider of outsourcing services to semiconductor
equipment manufacturers for the design and manufacture of gas delivery systems
and subassemblies. Gas delivery is a critical component of deposition, etch and
other semiconductor process equipment. The Company believes its outsourcing
services reduce its customers' total costs by shortening product delivery cycle
times, reducing inventory and materials procurement costs, eliminating
redundant work, enhancing information exchange and coordinating increasingly
complex manufacturing and design processes. The Company's principal customers
are Applied Materials, Inc., Lam Research Corporation, Watkins-Johnson Company
and most recently, Novellus Systems, Inc., four major North American
semiconductor equipment manufacturers. The Company offers a full range of gas
delivery solutions, including subassemblies for integration into its customers'
internally manufactured gas delivery systems and complete systems for
incorporation into its customers' products at final assembly. Insync has
recently introduced the Integrated Gas System (the "IGS"), a modular platform
for gas delivery that is designed to simplify the specification, configuration,
manufacturing and serviceability for gas delivery systems.
The manufacture of semiconductors has required increasingly complex and
sophisticated process technologies. More than 40% of all semiconductor
manufacturing equipment, which in turn performs more than 70% of the
manufacturing process steps, requires the introduction, management and
evacuation of process gases. These steps include the deposition of insulating
or conducting materials onto a wafer ("deposition") and the etching of the
wafer to selectively remove deposited material ("etch"). Deposition and etch
processes require highly controlled process environments and chemistry and, as
a result, the equipment used for deposition and etch is complex and
incorporates sophisticated systems to control various process gases and the
conditions in which they are used. Device manufacturers continuously demand
innovations in the core process technologies underlying deposition and etch. In
order to meet such demands, equipment manufacturers have been required to
repeatedly improve their process equipment in many respects, including the
inclusion of increasingly complex and sophisticated gas delivery systems.
Insync has expertise in gas delivery requirements and specialized production
capabilities focused on the design and manufacture of complex, customized gas
delivery systems and subassemblies within the time constraints demanded by
equipment manufacturers. The Company has invested significant resources in
developing additional manufacturing capabilities and capacity in order to offer
its customers advanced production capabilities that, in many cases, exceed the
customer's own internal capabilities. The Company believes its customers
benefit by outsourcing resource-intensive design and manufacturing activities
for gas delivery systems and subassemblies, and from the expertise and
efficiencies that the Company derives from providing outsourced gas delivery
solutions to multiple leading equipment manufacturers.
The Company's objective is to be the primary provider of outsourcing design
and manufacturing services for gas delivery to leading semiconductor equipment
manufacturers. The Company's strategy is to extend its leadership in gas
delivery, expand its gas delivery systems business, strengthen its
relationships with customers and suppliers, leverage its manufacturing
capabilities and promote modular approaches to gas delivery systems. In January
1996, Insync acquired substantially all of the non-cash assets and liabilities
of Pullbrite, Inc. ("Pullbrite"), another independent provider of gas delivery
systems to semiconductor equipment manufacturers. Insync was founded in 1989.
Insync's address is 1463 Centre Pointe Drive, Milpitas, California 95035 and
its telephone number is (408) 946-3100.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.. shares
Common Stock offered by the Selling
Shareholders........................ shares
Common Stock outstanding after the
Offering ........................... shares (1)
Use of proceeds...................... Repayment of debt and for working capital
and other general corporate purposes. See
"Use of Proceeds."
Proposed Nasdaq National Market
symbol.............................. INSY
</TABLE>
SUMMARY FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------- ----------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- --------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $ 2,771 $ 7,199 $ 20,617 $49,969 $86,099 $59,448 $34,679
Income (loss) from
operations............. 178 (72) 1,477 5,518 (8,260)(2) 9,411 2,174
Interest expense and
other, net............. 75 114 230 434 2,562 1,358 1,675
Net income (loss)....... 101 (188) 734 2,996 (6,508) 4,818 310
Pro forma net income
(loss) per share(3).... $ (0.87) $ 0.03
Pro forma shares used in
per share
computations(3)........ 7,617 8,214
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUN. 30,
1996 1996 1996 1996 1997 1997
-------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $33,125 $26,323 $ 16,015 $10,636 $15,102 $19,577
Income (loss) from
operations............. 5,768 3,643 (18,117)(2) 446 344 1,830
Interest expense and
other, net............. 713 645 608 596 913 762
Net income (loss)....... $ 3,019 $ 1,799 $(11,239) $ (87) $ (336) $ 646
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------
AS
ACTUAL ADJUSTED (4)
------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $ 7,951 $
Total assets.............................................. 39,241
Long-term obligations..................................... 17,108
Redeemable Preferred Stock and put warrants............... 23,845
Shareholders' equity (deficiency)......................... (17,030)
</TABLE>
- --------
(1) Excludes as of June 30, 1997 (i) 1,257,901 shares of Common Stock issuable
upon the exercise of outstanding options at a weighted average exercise
price of $3.90 per share and (ii) 317,996 shares of Common Stock issuable
upon the exercise of outstanding warrants at a weighted average exercise
price of $3.81 per share. See "Management--Stock Plans" and Notes 8 and 12
of Notes to Financial Statements of Insync.
(2) Includes charges of $16.6 million and $858,000 for the write down of
intangible assets and restructuring charges, respectively. See Notes 2 and
3 of Notes to Financial Statements of Insync.
(3) See Note 1 of Notes to Financial Statements of Insync for an explanation of
the number of shares used in computing pro forma net income (loss) per
share.
(4) Adjusted to reflect (i) conversion of each of the outstanding shares of
redeemable Series A Preferred Stock upon the closing of the Offering and
(ii) the sale of the shares of Common Stock offered by the
Company at an assumed initial public offering price of $ per share
(after deduction of the underwriting discounts and commissions and
estimated offering expenses) and the application of the net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."
Unless the context otherwise specifies, the information in this Prospectus
assumes (i) no exercise of the Underwriters' over-allotment option, (ii) the
conversion of all outstanding shares of redeemable Series A Preferred Stock of
the Company (the "Redeemable Preferred Stock") into an aggregate of 2,352,940
shares of Common Stock upon the closing of the Offering, and (iii) the
completion of a 2-for-3 reverse stock split of the Company's outstanding Common
Stock to be effected prior to the effectiveness of the Offering. See "Certain
Transactions" and "Underwriting."
4
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating an investment in the
shares of Common Stock offered hereby. This Prospectus contains forward-
looking statements that involve risks and uncertainties, including statements
regarding strategies, intentions or expectations. All forward-looking
statements included in this document are based on information available to the
Company on the date hereof, and the Company assumes no obligation to update
any such forward-looking statements. The Company's actual results may differ
materially from the results discussed in such forward-looking statements as a
result of certain factors including those set forth in the following risk
factors and elsewhere in this Prospectus.
Fluctuations in Operating Results. The Company's operating results have
fluctuated in the past and continue to be subject to annual and quarterly
fluctuations due to a variety of factors over which the Company may have
limited or no control and which may be difficult or impossible for the Company
to predict. For example, the Company's net sales for the quarters ended March
31, 1996, December 31, 1996, and June 30, 1997, were $33.1 million, $10.6
million and $19.6 million, respectively. Factors that may cause the Company's
operating results to fluctuate include: the timing and product mix of
significant orders and shipping schedules of its customers; industry-wide
changes in the demand for semiconductors or for semiconductor manufacturing
equipment; the ability of the Company to design, manufacture, test and deliver
defect-free gas delivery systems and subassemblies in a timely and cost
effective manner; the gain or loss of any significant customer; competitive
pressures; the timing of product announcements by the Company's competitors,
its customers or their competitors; seasonal changes in purchases of
semiconductor manufacturing equipment; the availability and cost of components
from the Company's suppliers; and the availability of production capacity. In
addition to fluctuations in net sales, gross margins can vary from period to
period as a result of a number of factors including the management of
production capacity and changes in product mix. For example, historically, gas
delivery systems have had lower gross margins than subassemblies and gross
margins for different types of subassemblies have varied. There can be no
assurances that the Company will anticipate or respond in a timely manner to
those factors listed above or that, irrespective of the Company's response,
such factors will not materially and adversely affect the Company's business,
operating results and financial condition in one or more quarterly or annual
periods.
A significant portion of the Company's operating and manufacturing expenses
are relatively fixed in nature and planned expenditures are based in part on
anticipated orders. In the event of a decline in net sales, the Company would
likely not be able to adjust spending quickly enough to compensate for such
decline which would magnify the adverse impact of the net sales shortfall on
the Company's business, operating results and financial condition. For
example, the Company has expended resources in recent periods to expand its
capabilities and capacity in anticipation of semiconductor manufacturing
industry growth. If such industry growth does not occur when anticipated or at
all, the Company's business, operating results and financial condition would
be materially adversely affected. In particular, the Company's manufacturing
capacity and operating expenses currently exceed levels required to support
present net sales and there can be no assurance that the Company's net sales
will increase in the future. For these and other reasons, results of
operations in any period should not be considered indicative of the results to
be expected for future periods and there can be no assurance that the Company
will be profitable in any future period. Due to the foregoing factors, it is
likely that in one or more future quarters, the Company's operating results
will fall below the expectations of public market analysts or investors. In
each such event, the price of the Company's Common Stock could decline
significantly. See "--Customer Concentration," "--Industry Concentration;
Cyclicality of Semiconductor Industry," "--Management of Business
Fluctuations" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Customer Concentration. Historically, substantially all of the Company's net
sales in any particular period have been attributable to a limited number of
semiconductor equipment manufacturers. Net sales
5
<PAGE>
to four of the Company's customers, Applied Materials, Lam Research, Watkins-
Johnson and Novellus Systems, accounted for approximately 86% of the Company's
net sales during 1996 and approximately 90% of its net sales for the six
months ended June 30, 1997. The Company expects that sales to a small number
of key customers will continue to account for substantially all of its net
sales for the foreseeable future. None of the Company's customers has entered
into a long-term agreement requiring them to purchase the Company's systems or
subassemblies or use its services. The Company's sales contracts generally
allow customers to cancel orders at any time with liability only for custom
material purchased and manufacturing steps completed as of the time of
cancellation. The demand for the Company's products and services from its
customers is dependent in part on orders received by them from their
semiconductor device manufacturer customers who are increasing capacity in
existing wafer fabrication facilities or building new facilities. As purchases
related to a particular new or expanded wafer fabrication facility are
completed, sales related to that semiconductor device manufacturer are likely
to decrease sharply. If completed contracts are not replaced on a timely basis
by new orders from the Company's customers relating to the same or other
device manufacturers, the Company's business, operating results and financial
condition could be materially adversely affected. Further, the appearance of a
close working relationship with a particular customer may materially adversely
affect the Company's ability to establish or maintain a relationship with, or
sell products to, competitors of that customer.
The Company's net sales could be materially adversely affected by a number
of factors, including: the loss of a significant customer or any reduction in
orders from any significant customer or the cancellation or delay of a
significant order from a customer; the Company's failure to be selected as a
provider of gas delivery systems or subassemblies for a new product or product
line of a significant customer; a customer's use of internal or multiple
external sources for its gas delivery requirements; customer deviations from
recent buying patterns; or financial difficulties of a customer or a
significant semiconductor device manufacturer. The Company has experienced
significant reductions in net sales in prior periods due to such factors. For
example, net sales attributable to a key customer declined from $13.2 million
for the first calendar quarter of 1996 to $2.0 million for the fourth calendar
quarter of 1996, which the Company believes was due primarily to reduced
production levels by such customer in response to a general slowdown of the
semiconductor equipment market which began in the second calendar quarter of
1996, the decision by such customer to work off inventories built up during
prior quarters and the selection by such customer of another gas delivery
provider for systems related to a new product. In addition, there can be no
assurance that one or more of the Company's key customers will not temporarily
or permanently elect to produce a higher proportion of their gas delivery
requirements internally. Any such reductions in outsourcing, which may be more
likely during periods of slowdown, would magnify the adverse effects of any
slowdowns in the Company's business and could limit the success of the
Company's strategy to supply an increasing portion of its customers' total gas
delivery requirements. The occurrence or recurrence of any of such factors,
many of which are outside the Company's control, could materially adversely
affect the Company's business, operating results and financial condition.
There can be no assurance that any of the Company's customers will not
reduce or cease ordering the Company's products or services due to the above
factors or other reasons. Any such reduction or cessation would likely have a
material adverse effect on the Company's business, operating results and
financial condition. Furthermore, attempts to mitigate the adverse effects of
such reduction or cessation through the prompt addition of a new customer or
customers would likely be difficult since prospective customers typically
require lengthy qualification periods prior to placing volume orders with a
new provider of gas delivery systems and subassemblies.
Although the Company maintains a backlog, the Company's customers may defer
or cancel orders without significant penalties. Anticipated orders from the
Company's customers have in the past failed to materialize and delivery
schedules have been deferred or canceled as a result of changes in customer
requirements. Order deferrals and cancellations have in the past and may in
the future have a material
6
<PAGE>
adverse effect on the Company's business, operating results and financial
condition. See "--Dependence on Outsourcing; Evolving Gas Delivery Industry,"
"--Industry Concentration; Cyclicality of Semiconductor Industry," "Business--
Customers" and Note 10 to Notes to Financial Statements of Insync.
Dependence on Selection as Provider for New Products. The Company's ability
to generate net sales in the future is primarily dependent on its being
selected by semiconductor equipment manufacturers as a provider of gas delivery
systems and/or subassemblies for their new products. In any given period, the
Company's gas delivery systems and subassemblies are included in only a limited
number of different models of semiconductor device manufacturing equipment,
each having a limited life cycle. In the past, equipment manufacturers have
selected gas delivery providers for new product models during the design and
testing phases of their product development cycles. The Company believes that
it would be difficult for it to begin providing gas delivery systems and/or
subassemblies for use in a particular model of wafer processing equipment if
the Company had not been selected and qualified as a provider during the
development of such product. Therefore, a failure to be selected as a provider
during the early stages of a product's life cycle could preclude the Company
from being an outsourced provider of gas delivery systems and/or subassemblies
for such product model throughout its life cycle. For example, the Company's
net sales were negatively affected during the second half of 1996 when a
competitor became the primary provider of the gas delivery system for a new
product generation developed by one of the Company's major customers. In
addition, such failure to be selected could reduce the Company's ability to be
selected as a provider for future product models if, for example, such failure
adversely affects the working relationship between the Company and the
manufacturer of such product model. There can be no assurance that the Company
will be selected as a provider of gas delivery systems and/or subassemblies for
new product models introduced by existing customers or other equipment
manufacturers. Unless the Company is selected as a provider of gas delivery
systems and/or subassemblies for new models as existing models are phased out,
the Company's business, operating results and financial condition will be
materially and adversely affected.
Industry Concentration; Cyclicality of Semiconductor Industry. Substantially
all of the Company's net sales are derived from the sale of gas delivery
systems and subassemblies to semiconductor equipment manufacturers. The gas
delivery requirements of semiconductor equipment manufacturers are, in turn,
dependent upon capital expenditures by semiconductor device manufacturers,
particularly those opening new wafer fabrication facilities or expanding or
upgrading existing facilities. The construction and expansion of fabrication
facilities is influenced in large part by the current and anticipated market
demand for semiconductors and products utilizing such devices. There can be no
assurance as to when or whether semiconductor device manufacturers will
construct and expand wafer fabrication facilities. The semiconductor industry
has historically been highly cyclical and has experienced periods of
oversupply. Such periods have resulted in significantly reduced demand for
semiconductor manufacturing equipment, including equipment requiring the gas
delivery systems and subassemblies provided by the Company. Furthermore, the
Company believes that its net sales may decline disproportionately as compared
to the semiconductor equipment market in periods of slowdown or downturn if its
customers respond to such slowdowns or downturns by reducing their inventory
levels or by reducing outsourcing. For example, the Company's net sales
declined from $33.1 million for the first quarter of 1996 to $10.6 million for
the fourth quarter of 1996 which the Company believes was primarily due to a
downturn in the semiconductor equipment market. In addition, the Company
believes its ability to reduce expenses in a future downturn will be
constrained by the need to sustain investments in marketing, research,
development and engineering, and the need to maintain extensive customer
service and support capabilities. The Company expects that the semiconductor
device and equipment markets will continue to be cyclical and will decline in
some future periods. The Company's business, operating results and financial
condition could be materially adversely affected by such downturns or slowdowns
in the semiconductor device and equipment markets.
7
<PAGE>
Failure to Meet Customer Performance Criteria; Risk of Delays or
Defects. The Company's gas delivery systems and subassemblies are intended to
be integrated into semiconductor process equipment manufactured by the
Company's customers for sale to semiconductor device manufacturers. The
Company's customers have demanding requirements for on-time delivery of
defect-free systems and subassemblies. Any delay by the Company in delivering
fully functional systems and subassemblies to any customer may lead to lost or
delayed sales. A failure to meet on-time delivery or performance criteria
could, in addition to resulting in the loss of revenue from, and loss of
future business with, such customer, cause long-term damage to the Company's
reputation, delay market acceptance of the Company's systems, subassemblies
and technologies (including the IGS), and increase warranty and service costs,
any of which could have a material adverse effect upon the Company's business,
operating results and financial condition. In the past, the Company has
experienced difficulty in meeting its customers' delivery schedules and
quality standards, particularly during periods in which the Company was
attempting to rapidly increase or decrease production capacity in response to
significant fluctuations in demand. For example, during the first six months
of 1997, the rates of late deliveries to customers and items rejected by
customers for defects or deviations from specifications were substantially
higher than the Company has historically experienced. The Company believes
that these increases were primarily attributable to difficulties associated
with training newly hired employees and increasing the Company's production
capacity following employee layoffs and decreases in production experienced in
the second half of 1996 and from changes to manufacturing processes
implemented during the first half of 1997. Although the Company's on-time
delivery and performance standards have recently returned to historic levels,
there can be no assurance that the Company will continue to meet on-time
delivery and product performance specifications in the future. A failure to
meet on-time delivery and specifications of customers could have a material
adverse effect upon the Company's business, operating results and financial
condition.
Dependence on Outsourcing; Evolving Gas Delivery Industry. The Company is
dependent on the outsourcing of gas delivery systems and subassembly
requirements by semiconductor equipment manufacturers. The Company believes
that the market created by such outsourcing is evolving rapidly. Historically,
semiconductor equipment manufacturers designed and manufactured the majority
of gas delivery systems and subassemblies internally due to their highly
specialized design, need for last-minute configurability, and importance to
overall equipment performance. Companies providing outsourcing services have
historically addressed only part of equipment manufacturers' total gas
delivery needs, often building selected subassemblies to the equipment
manufacturers' specifications. The Company believes that equipment
manufacturers will not substantially increase the degree to which they
outsource their gas delivery requirements until independent providers can
demonstrate their ability to consistently provide comprehensive gas delivery
systems on a cost competitive basis, in a timely and efficient manner and in
quantities sufficient to support volume production. The Company's objectives
of adding new customers and increasing sales to existing customers are
dependent on the Company developing such capabilities and capacity and on
equipment manufacturers selecting the Company as a provider of such
outsourcing services. Although the Company has invested substantial financial
and other resources in efforts to develop such capabilities and capacity and
to build relationships with equipment manufacturers, there can be no assurance
that the Company will have the capabilities and capacity to provide the full
breadth of these requirements on a cost competitive basis. In addition, there
can be no assurance that the Company will successfully develop the
capabilities to address, on a consistent basis, the complete array of gas
delivery requirements demanded by semiconductor equipment manufacturers.
Regardless of whether the Company is successful in meeting the gas delivery
requirements of semiconductor equipment manufacturers, there can be no
assurance that the market for independent gas delivery suppliers will not
decrease in the future. Such market is dependent on the degree to which
semiconductor equipment manufacturers outsource their gas delivery needs.
There can be no assurance that equipment manufacturers will continue to
outsource their gas delivery requirements or, if such outsourcing continues,
that such customers will increase their outsourcing or that the Company will
be selected as a provider of outsourcing services. In particular, in the event
of a slowdown or an overall
8
<PAGE>
decline in the semiconductor equipment industry (such as the slowdown which
began in the second quarter of 1996) there can be no assurance that
semiconductor equipment manufacturers will not produce a greater proportion of
their gas delivery system requirements internally. A decrease or slowdown in
the market for independent gas delivery providers could have a material
adverse effect on the business, operating results and financial condition of
the Company.
Competition. The Company believes that competition in the gas delivery
market is intense and likely to increase substantially. Traditionally, gas
delivery systems and subassemblies have been primarily manufactured internally
by semiconductor equipment manufacturers. While these equipment manufacturers
are significant customers or potential customers of the Company, companies
including Applied Materials and Lam Research continue to produce significant
quantities of gas delivery systems internally. For a variety of reasons,
including any downturn or slowdown in the semiconductor equipment industry,
there can be no assurance that semiconductor equipment manufacturers will not
elect to utilize their internal manufacturing capacity to manufacture a
greater percentage of their gas delivery requirements. The Company's
competitors also include numerous privately and publicly held independent gas
delivery providers, mass flow controller companies and others. Other companies
not currently offering such systems, including gas suppliers, may attempt to
enter and develop products for this market or to develop alternative
technologies which could reduce the need for the Company's products. The trend
towards consolidation in the semiconductor equipment industry has made it
increasingly important to have the financial resources and manufacturing
capacity necessary to meet the requirements of large equipment manufacturers,
to fund customer service and support, and to invest in both product and
process research and development. Current and potential competitors may have
substantially greater financial resources, name recognition and more extensive
engineering, manufacturing, marketing and customer service and support
capabilities than the Company. In addition, most of the Company's key
customers have established relationships with one or more of the Company's
competitors as additional or alternative providers, which the Company believes
tends to further intensify competition and may limit the Company's ability to
capture a greater percentage of a customer's outsourced gas delivery
requirements. The Company expects its current competitors to continue to
improve the design and performance of their existing products and processes,
and to introduce new products and processes with improved performance
characteristics and/or lower prices. New product introductions or product
announcements by the Company's competitors could cause a decline in sales or a
loss of market acceptance of the Company's gas delivery systems and
subassemblies. Moreover, such increased competitive pressure could lead to
intensified price competition, which could have a material adverse effect on
the Company's business, operating results and financial condition. There can
be no assurance that the Company will be able to compete successfully in the
future. See "Business--Competition."
Management of Business Fluctuations. The Company has, in the past, undergone
periods of rapid growth and periods of rapid declines in net sales. See "--
Fluctuations in Operating Results." In response to the downturn in the
semiconductor equipment industry that began in the second quarter of 1996, the
Company significantly reduced its workforce and production capacity and
deferred expenditures for operational and financial infrastructure. As a
result of significant increases in orders in the first and second quarters of
1997, compared to the fourth quarter of 1996, the Company hired and trained a
significant number of new employees in the first half of 1997. The Company
believes that problems associated with rapid growth in the Company's capacity
caused the Company to fail to meet customers' on-time delivery and product
specifications requirements in the first half of 1997, which in turn adversely
affected the net sales of the Company during such period.
The significant quarter to quarter net sales increases and decreases
historically experienced from time to time by the Company and by the
semiconductor equipment industry require the Company to balance its short term
operational needs with long range planning needs. If the Company believes a
downturn is of relatively short duration, management may choose to retain
capacity and capabilities that
9
<PAGE>
exceed present needs to avoid disruptions. Any decision to retain such
capacity and capabilities would have at least a short-term adverse effect on
the Company's business, operating results and financial condition. Conversely,
if management determines to reduce its capacity and capabilities, the Company
may be unable to take advantage of future industry growth, or may lose market
share to competitors with greater manufacturing capacity during subsequent
periods of expansion, thus reducing the Company's net sales in future
quarters.
The Company is making significant expenditures in the second half of 1997 to
prepare for potential growth in the semiconductor industry based, in part,
upon management's belief that customers' selection of the Company's systems
and services may depend on the Company having the demonstrable capacity to
accommodate such customers' volume and other requirements. Company initiatives
include expansion of production capacity, hiring and training employees and
implementation and installation of a variety of new and upgraded operating and
financial systems, procedures and controls, including the enhancement of its
accounting and other internal management systems and the linking of its
systems and processes with those of its key customers. There can be no
assurance, however, that the Company will successfully implement such
installation or achieve such enhancement or that such enhancement, if
achieved, will result in lower costs or on-time performance. In addition, in
the event that anticipated growth in the semiconductor industry and the
Company's customers do not materialize in the near term, the expenditures
incurred by the Company in implementing such expansion measures would have a
material adverse effect on the Company's business, operating results and
financial condition.
In periods of growth, the Company must identify, recruit, train and
integrate new employees quickly to keep pace with such growth. The
availability of qualified personnel is limited and competition for such
personnel is intense. Any such growth could also significantly strain the
Company's management, manufacturing, financial and other resources. Any
failure to address these growth issues in an effective manner could have a
material adverse effect on the Company's business, operating results and
financial condition. There can be no assurance that the additions and upgrades
to the Company's operating systems, procedures and controls being implemented
in the second half of 1997 will be implemented successfully or without
unexpected costs, delays or difficulties, or will enhance the Company's
ability to manage any future growth or closely integrate the Company's systems
with those of its customers. Moreover, there can be no assurance that the
Company will grow in future periods, or if such growth occurs, that the
Company's systems, procedures and controls will be adequate to support the
Company's expanded operations. Finally, the expansion of its facilities or any
move to new facilities could be disruptive and could have a material adverse
effect on the Company's business, operating results and financial condition.
In particular, there can be no assurance of the Company's ability to fully
utilize any expanded capacity on a timely basis.
Rapid Technological Change. The semiconductor equipment industry is
characterized by, among other things, rapid technological change, evolving
industry standards, frequent new product introductions and significant
competition. The success of the Company in developing, introducing, selling
and supporting gas delivery systems and subassemblies depends upon effectively
managing total costs to customers and a variety of other factors including:
the ability of the Company to identify and address emerging customer
requirements; the timely and efficient completion of gas delivery system
design, development, manufacture and assembly; software development; and
product field-testing. To the extent gas delivery systems, subassemblies and
capabilities developed by the Company are based upon anticipated changes in
semiconductor production technologies, sales for such offerings may be
materially adversely affected if such technologies do not gain acceptance in
the industry. There can be no assurance that the Company will be successful in
developing, manufacturing, marketing or enhancing existing or new gas delivery
systems or subassemblies for new or emerging process technologies.
Furthermore, there can be no assurance that it will be able to do so quickly
enough to keep pace with rapid technological advances in the industry. In
addition, the introduction of new or enhanced gas delivery systems,
10
<PAGE>
subassemblies and capabilities by the Company's competitors, suppliers or
customers could cause a decline in net sales or loss of market acceptance of
the Company's existing and/or future offerings.
The Company's future operating results could also be adversely affected if
it fails to support newly introduced and accepted modular gas delivery system
platforms. The Company believes that equipment manufacturers may begin to
supplant traditional, fully-customized design techniques with more modular
approaches in an effort to simplify the design, specification, manufacture and
installation of gas delivery systems. To the extent equipment manufacturers
demand gas delivery systems based on modular platforms, the Company's
business, operating results and financial condition would be materially
adversely affected if the IGS, the Company's modular platform, fails to gain
wide market acceptance.
Furthermore, fundamental changes in gas delivery system requirements for
semiconductor process technologies could materially reduce or eliminate the
semiconductor equipment industry's demand for and dependence on the
capabilities that the Company has developed with respect to current gas
delivery system methodologies. The failure of the Company to respond quickly
to such changes and to offer competitive solutions would likely significantly
impact the Company's market share and materially adversely affect the
Company's business, operating results and financial condition. See "Business--
Systems and Services."
Sole or Limited Sources of Supply. The Company relies to a substantial
extent on outside vendors to manufacture many of the components used in its
gas delivery systems and subassemblies. From time to time, certain of these
components are only attainable from a sole or limited group of suppliers. The
Company's reliance on outside vendors generally, and on a sole or limited
group of suppliers in particular, involves several risks, including a
potential inability to obtain an adequate supply of required components,
reduced control over pricing and timely delivery of components, and limited
ability to pass on price increases to its customers. Because the procurement
of certain of these components may require long lead times, there can be no
assurance that delays or shortages caused by suppliers will not occur. The
Company's ability to fill customer orders may depend on the availability of
thousands of different components from its suppliers and, particularly in
periods of high demand, the Company has in the past experienced difficulties
in obtaining certain components on a timely basis which has delayed deliveries
to the Company's customers. Any such inability to obtain adequate deliveries
or any other circumstance that would require the Company to seek alternative
sources of supply, or to manufacture such components internally, could delay
the Company's ability to ship its products and could have a material adverse
effect on the Company's business, operating results and financial condition.
In addition, the Company's customers, at times, require the Company to secure
certain components from a specific component manufacturer. If the Company is
unable to secure these specified components due to supplier shortages or for
any other reason, it could adversely affect the Company's ability to retain
the customer's order or to deliver products on a timely basis, which in turn
could adversely affect its relationship with the customer. If significant
customer relationships were adversely affected in this manner, it could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Business--Manufacturing."
Limited Intellectual Property Protection. The Company relies on a
combination of patent, copyright, trademark and trade secret laws,
nondisclosure agreements and other intellectual property protection methods to
protect its proprietary technology. Although the Company currently holds two
patents and has three pending patent applications in the United States, the
Company believes that patents are of less significance in its industry than
such factors as customer service, innovation, technical expertise and know-how
of its personnel. There can be no assurance that the Company's competitors
will not be able to legally ascertain the nonpatented proprietary information
embedded in the Company's gas delivery systems or other products, in which
case the Company may be unable to prevent use of such information. To the
extent the Company elects to assert its patent rights, there can be no
assurance that any claims of the Company's patents will be sufficiently broad
to protect the Company's technology. In addition, there can be no assurance
that any patents issued to the Company will not be challenged,
11
<PAGE>
invalidated or circumvented, that any rights granted thereunder will provide
adequate protection to the Company, or that the Company will have sufficient
resources to prosecute its rights.
Although the Company has not received any notices from third parties
alleging infringement claims, there can be no assurance that infringement
claims by third parties or claims for indemnification resulting from
infringement claims will not be asserted in the future, or that such
assertions, if proven to be true, will not materially adversely affect the
Company's business, operating results and financial condition. If any such
claims are asserted against the Company, the Company may seek to obtain a
license under the third party's intellectual property rights. There can be no
assurance that a license will be available on reasonable terms or at all.
Alternatively, the Company could decide to resort to litigation to challenge
such claims. Such challenges could be extremely expensive and time consuming.
Adverse determinations in any litigation could subject the Company to
significant liabilities to third parties, require the Company to seek licenses
from third parties and prevent the Company from manufacturing and selling its
products. Any of these developments could have a material adverse effect on
the Company's business, operating results and financial condition.
Dependence on Key Personnel. The Company's financial performance will depend
in significant part upon the continued contributions of Stanley L. Leopard,
its Chairman of the Board and Chief Executive Officer, Jorge L. Titinger, its
President and Chief Operating Officer, Brent D. Elliot, its Executive Vice
President, Technology and Marketing, and other officers and key personnel,
many of whom would be difficult to replace. None of such persons has an
employment or non-competition agreement with the Company. In addition, the
Company maintains only limited key man life insurance on these three officers.
The loss of Mr. Leopard, Mr. Titinger, Mr. Elliot or any other key person
could have a material adverse effect on the Company's business, operating
results and financial condition. In addition, the Company's future operating
results depend, in part, upon its ability to attract and retain other
qualified management, engineering, financial, technical, marketing and sales
and support personnel for its operations. Competition for such personnel is
intense, and there can be no assurance that the Company will be successful in
attracting or retaining such personnel. The failure to attract or retain such
persons could materially adversely affect the Company's business, operating
results and financial condition. See "Business--Employees" and "Management--
Directors and Executive Officers."
Potential Future Acquisitions. In the future, the Company may pursue
acquisitions of product lines, technologies or businesses. Future acquisitions
by the Company may result in the use of significant amounts of cash,
potentially dilutive issuances of equity securities, incurrence of debt and
amortization expenses related to goodwill and other intangible assets, each of
which could materially adversely affect the Company's business, operating
results and financial condition. For example, in the third fiscal quarter of
1996, the Company recorded an expense of $16.6 million related to the
reduction in carrying value of certain intangible assets acquired from
Pullbrite, Inc. in January 1996. In addition, acquisitions involve numerous
risks, including difficulties in the assimilation of the operations,
technologies and products of the acquired company, the diversion of
management's attention from other business concerns, risks of entering markets
in which the Company has no or limited direct prior experience, and the
potential loss of key employees of the acquired company. From time to time,
the Company has engaged in preliminary discussions with third parties
concerning potential acquisitions of product lines, technologies and
businesses; however, there are currently no negotiations, commitments or
agreements with respect to any acquisition. In the event that such an
acquisition does occur, however, there can be no assurance as to the effect
thereof on the Company's business, operating results and financial condition.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and Note 2 of Notes to Financial Statements of Insync.
Limited Insurance Coverage; Environmental Regulation. The operations of the
Company involve the use of industrial machine tools and exposure to hazardous
chemicals, with attendant risks of liability for personal injury and property
damage. There can be no assurance that accidents will not occur or that the
Company will not incur substantial liability in connection with the operation
of its business. The
12
<PAGE>
Company maintains workers' compensation insurance and general liability
insurance, with policy limits of $1.0 million per accident or occurrence. The
Company also maintains an umbrella policy with limits of $5.0 million in the
aggregate. Such insurance excludes coverage for losses or liabilities relating
to environmental damage or pollution. The Company's business, operating results
and financial condition could be materially adversely affected by a claim that
was not covered or only partially covered by its insurance. In addition, the
Company is subject to a variety of governmental regulations relating to the
use, storage, handling and disposal of toxic or other hazardous substances used
in connection with its electropolishing activities. Any failure by the Company
to control the use, storage, handling or disposal or adequately restrict the
discharge of hazardous or toxic substances could subject the Company to
significant liabilities or could cause the Company's manufacturing operations
to be curtailed or suspended.
Control by Directors and Executive Officers. The Company's directors,
executive officers and their affiliates will beneficially own approximately %
of the Company's outstanding Common Stock upon completion of the Offering. Such
concentration of ownership may have the effect of delaying or preventing a
change in control of the Company. Additionally, as a result of their securities
ownership and their positions with the Company, these shareholders will have
significant influence over major corporate transactions as well as the election
of directors of the Company and matters on which the Board of Directors may
act. See "Principal and Selling Shareholders."
No Prior Public Market; Possible Volatility of Stock Price. Prior to the
Offering, there has been no public market for the Company's Common Stock, and
there can be no assurance that an active public market for the Common Stock
will develop or be sustained after the Offering. The initial public offering
price will be determined by negotiations among the Company, the Selling
Shareholders and the representatives of the Underwriters based upon several
factors and may not be indicative of future market prices. The market price of
the Company's Common Stock could be subject to wide fluctuations in response to
quarterly variations in operating results, announcements of technological
innovations or new products by the Company, its competitors or its customers,
trends in the semiconductor manufacturing industry and other events or factors.
In addition, the stock market has experienced extreme price and volume
fluctuations that have particularly affected the market prices for many
companies in the semiconductor sector. These broad market fluctuations may
adversely affect the market price of the Company's Common Stock. In the past,
following periods of volatility in the market price of a company's securities,
securities class action litigation has been initiated against the issuing
company. There can be no assurance that such litigation will not occur in the
future with respect to the Company. Such litigation could result in substantial
costs and a diversion of management's attention and resources, which could have
a material adverse effect on the Company's business, operating results and
financial condition. Any settlement or adverse determination in such litigation
could also subject the Company to significant liability, which could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Underwriting."
Anti-Takeover Effects of Unissued Preferred Stock. Upon the completion of the
Offering, the Company's Board of Directors will have the authority to issue up
to 4,000,000 shares of Preferred Stock and to determine the price, rights,
preferences, privileges and restrictions of those shares without any further
vote or action by the shareholders. The rights of the holders of Common Stock
will be subject to, and may be adversely affected by, the rights of the holders
of any Preferred Stock that may be issued in the future. The issuance of
Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company, thereby delaying, deterring or
preventing a change in control of the Company. The Company has no present plans
to issue shares of Preferred Stock after completion of the Offering. See
"Description of Capital Stock."
Need for Additional Capital. The Company believes that in order to remain
competitive it may require additional financial resources over the next several
years for working capital, research,.
13
<PAGE>
development and engineering, expansion of sales and marketing efforts, capital
expenditures and potential acquisitions. Although the Company believes that it
will be able to fund planned expenditures for at least the next 12 months from
a combination of the proceeds of the Offering, cash flow from operations,
existing cash balances and the Company's bank line of credit, there can be no
assurance that the Company will be able to obtain any additional financing
which may be required in the future on acceptable terms or at all. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
Shares Eligible for Future Sale. Sales of substantial amounts of shares in
the public market or the prospect of such sales could adversely affect the
market price of the Company's Common Stock. Upon completion of the Offering,
the Company will have outstanding shares of Common Stock. Of these shares,
(i) all of the shares offered hereby and an additional shares held by
existing shareholders will be freely saleable upon the effectiveness of the
Offering, (ii) shares will be eligible for sale 90 days following the
effectiveness of the Offering under Rules 144 and 701 promulgated under to the
Securities Act of 1933, as amended (the "Securities Act") and (iii) an
additional shares of Common Stock held by current shareholders are subject
to lock-up agreements under which the holders of such shares have agreed not
to sell or otherwise dispose of any of their shares for a period of 180 days
after the date of this Prospectus without the prior written consent of BT
Alex. Brown Incorporated. After the 180-day period, approximately shares
will be eligible for sale under Rules 144 and 701. The remaining approximately
shares held by existing shareholders will become eligible for sale from
time to time in the future under Rule 144. In addition, the Company intends to
file a registration statement under the Securities Act shortly after the
effectiveness of the Offering, covering the sale of shares of Common Stock
reserved for issuance under the Company's Amended and Restated 1993 Stock
Option Plan (the "1993 Plan"), 1997 Stock Plan (the "1997 Plan") and 1997
Employee Stock Purchase Plan (the "1997 Purchase Plan"). As of August 1, 1997,
there were options outstanding to purchase a total of approximately shares
of the Company's Common Stock, all of which are subject to 180-day lock-up
agreements, and approximately additional shares reserved for future option
grants. Approximately shares issuable upon exercise of such options will
be eligible for purchase and resale into the public market 180 days after the
date of this Prospectus in reliance upon Rule 701. Certain existing
shareholders, holding an aggregate of approximately shares of Common Stock
and the holders of warrants to purchase shares of Common Stock also will
be entitled to registration rights with respect to their shares of Common
Stock after the Offering. See "Management--Stock Plans," "Description of
Capital Stock--Registration Rights of Certain Holders," "Shares Eligible for
Future Sale," and "Underwriting."
Dilution. Purchasers in the Offering will experience immediate and
substantial dilution in the net tangible book value per share of the Common
Stock from the initial public offering price. Additional dilution will occur
upon the exercise of outstanding stock options and warrants. See "Dilution"
and "Management--Stock Plans."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common
Stock offered by the Company hereby, based on an assumed initial public
offering price of $ per share, and after deducting underwriting discounts
and commissions and estimated offering expenses, are estimated to be $
million ($ million if the Underwriters' over-allotment option is exercised
in full). The Company will not receive any proceeds from the sale of shares of
Common Stock to be sold by the Selling Shareholders in the Offering.
The Company will use approximately $12.0 million of the net proceeds of the
Offering to repay a portion of the outstanding balance owed on a term loan and
will repay the outstanding balance on the Company's bank line of credit ($1.5
million outstanding at June 30, 1997). The remaining net proceeds will be used
for working capital and general corporate purposes. A portion of the net
proceeds may also be used for investments in or acquisitions of complimentary
businesses, products or technologies, although no such transactions are
currently under negotiation. Pending such uses, the Company will invest the net
proceeds from the Offering in short-term, investment grade, interest bearing
securities, including government obligations and other money market
instruments. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources" and Note 5 of Notes
to Financial Statements of Insync.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its capital stock.
The Company currently intends to retain any earnings for use in its business
and does not anticipate declaring or paying any cash dividends in the
foreseeable future. In addition, the Company's bank credit facility prohibits
the declaration or payment of dividends without the bank's prior approval. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
15
<PAGE>
CAPITALIZATION
The following table sets forth as of June 30, 1997 (i) the actual
capitalization of the Company, (ii) the unaudited pro forma capitalization of
the Company reflecting the conversion of all outstanding shares of Redeemable
Preferred Stock into Common Stock and (iii) the unaudited pro forma
capitalization of the Company to reflect the net sale of shares of Common
Stock pursuant to the Offering at an assumed initial public offering price of
$ per share and the application of the net proceeds therefrom as set forth
under "Use of Proceeds." The capitalization information set forth in the table
below is qualified by the more detailed Financial Statements and Notes thereto
appearing elsewhere in this Prospectus and should be read in conjunction with
such Financial Statements and Notes.
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------
PRO AS
ACTUAL FORMA ADJUSTED
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term bank notes payable and other(1)........... $ 17,108 $17,108 $
Redeemable Preferred Stock, $.01 par value;
3,000,000 shares authorized; 3,000,000 shares
outstanding, actual; none outstanding pro forma and
as adjusted........................................ 23,485 --
Common stock put warrants........................... 360 360
Shareholders' equity (deficiency):
Preferred stock, $.01 par value, none authorized,
actual; 4,000,000 shares authorized, pro forma
and as adjusted; none outstanding................ -- --
Common stock, $.01 par value; 50,000,000 shares
authorized; 5,116,279 shares outstanding, actual;
7,469,219 shares outstanding, pro forma;
shares outstanding, as adjusted(2)............... 951 24,436
Deferred stock compensation....................... (316) (316)
Retained earnings (deficit)....................... (17,665) (17,665)
-------- -------- ----
Total shareholders' equity (deficiency)........... (17,030) 6,455
-------- -------- ----
Total capitalization............................ $ 23,923 $ 23,923 $
======== ======== ====
</TABLE>
- --------
(1) See Note 5 of Notes to Financial Statements of Insync.
(2) Excludes as of June 30, 1997 (i) 1,257,901 shares of Common Stock issuable
upon the exercise of outstanding options at a weighted average exercise
price of $3.90 per share and (ii) 317,996 shares of Common Stock issuable
upon the exercise of outstanding warrants at a weighted average exercise
price of $3.81 per share. See "Management--Stock Plans" and Notes 8 and 12
of Notes to Financial Statements of Insync.
16
<PAGE>
DILUTION
Purchasers of the Common Stock offered hereby will experience immediate and
substantial dilution in the pro forma net tangible book value of the Common
Stock from the assumed initial public offering price. The pro forma net
tangible book value of the Company's Common Stock at June 30, 1997 was $3.0
million or $0.40 per share. Pro forma net tangible book value per share is
determined by dividing the amount of total tangible assets of the Company less
total liabilities by the number of shares of Common Stock outstanding as of
such date assuming the conversion of all outstanding shares of Redeemable
Preferred Stock. After giving effect to the sale of shares of Common
Stock offered by Insync hereby (at an assumed initial public offering price of
$ per share and after deducting the underwriting discounts and commissions
and estimated offering expenses payable by the Company), the pro forma net
tangible book value of Insync at June 30, 1997 would have been $ or $ per
share. This represents an immediate increase in pro forma net tangible book
value of $ per share to existing shareholders and an immediate dilution of
$ per share to new investors purchasing shares at the assumed initial public
offering price. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price............................... $
Pro forma net tangible book value at June 30, 1997................ $0.40
Increase in pro forma net tangible book value attributable to new
investors........................................................
-----
Pro forma net tangible book value after the Offering................
----
Pro forma net tangible book value dilution to new investors......... $
====
</TABLE>
The following table sets forth on a pro forma basis as of June 30, 1997 the
number of shares of Common Stock purchased from Insync, the total consideration
paid to Insync, and the average price per share paid by existing shareholders
and by new investors purchasing shares in the Offering (based upon an assumed
initial public offering price of $ per share and before deduction of
estimated underwriting discounts and commissions and offering expenses payable
by Insync):
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION
----------------------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- --------------------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders.. 7,469,219 % $27,685,000 % $3.71
New investors..........
----------- ------- ----------- -----
Total................ 100.0% $ 100.0%
=========== ======= =========== =====
</TABLE>
- --------
(1) Sales by the Selling Shareholders in the Offering will reduce the number
of shares of Common Stock held by existing shareholders to or
approximately % ( shares, or approximately % if the
Underwriters' over-allotment option is exercised in full) and will
increase the number of shares held by new investors to or
approximately % ( shares, or approximately %, if the
Underwriters' over-allotment option is exercised in full) of the total
number of shares of Common Stock outstanding after this Offering. See
"Principal and Selling Shareholders."
The computations in the tables above exclude as of June 30, 1997 (i)
1,257,901 shares of Common Stock issuable upon exercise of outstanding options
at a weighted average exercise price of $3.90 per share, (ii) 317,996 shares of
Common Stock issuable upon the exercise of outstanding warrants at a weighted
average exercise price of $3.81 per share and (iii) an aggregate of 676,403
additional shares of Common Stock, subject to shareholder approval, reserved
for future issuance under the Company's 1993 Plan, 1997 Plan and 1997 Purchase
Plan. To the extent that these options or warrants are exercised, there will be
substantial further dilution to new investors. See "Capitalization,"
"Management--Stock Plans" and Notes 8 and 12 of Notes to Financial Statements
of Insync.
17
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data of Insync as of December 31, 1995 and
1996 and June 30, 1997, and for each of the three years in the period ended
December 31, 1996 and for the six months ended June 30, 1997 are derived from
the Company's financial statements audited by Deloitte & Touche LLP,
independent auditors, included elsewhere in the Prospectus. The selected
financial data as of December 31, 1994 has been derived from audited financial
statements not included herein. The selected financial data as of and for the
years ended December 31, 1992 and 1993 and for the six months ended June 30,
1996 have been derived from unaudited financial statements that have been
prepared on the same basis as the audited financial statements and which, in
the opinion of management, included all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
position and results of operations. All of the data set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and with the Financial Statements and
Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------ ------ ------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $2,771 $7,199 $20,617 $49,969 $86,099 $ 59,448 $ 34,679
Cost of sales........... 1,879 5,487 15,668 36,529 62,261 41,464 26,327
------ ------ ------- ------- ------- -------- --------
Gross profit............ 892 1,712 4,949 13,440 23,838 17,984 8,352
Operating expenses:
Selling, general and
administrative......... 714 1,471 2,803 5,686 11,070 6,286 4,289
Research, development
and engineering........ -- 313 669 2,236 3,560 2,287 1,889
Write down of
intangible assets...... -- -- -- -- 16,610 -- --
Restructuring charges.. -- -- -- -- 858 -- --
------ ------ ------- ------- ------- -------- --------
Total operating
expenses.............. 714 1,784 3,472 7,922 32,098 8,573 6,178
------ ------ ------- ------- ------- -------- --------
Income (loss) from
operations.............. 178 (72) 1,477 5,518 (8,260) 9,411 2,174
Interest expense and
other, net.............. 75 114 230 434 2,562 1,358 1,675
------ ------ ------- ------- ------- -------- --------
Income (loss) before
income taxes............ 103 (186) 1,247 5,084 (10,822) 8,053 499
Provision for income
taxes................... 2 2 513 2,088 (4,314) 3,235 189
------ ------ ------- ------- ------- -------- --------
Net income (loss)....... $ 101 $ (188) $ 734 $ 2,996 $(6,508) $ 4,818 $ 310
====== ====== ======= ======= ======= ======== ========
Pro forma net income
(loss) per share(1)..... $ (0.87) $ 0.03
======= ========
Pro forma shares used in
per share
computations(1)......... 7,617 8,214
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------------- ----------------
1992 1993 1994 1995 1996 1996 1997
------ ------ ------ ------ -------- ------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............. $ 85 $ 2 $ 39 $ 182 $ 2,829 $5,549 $ 929
Working capital
(deficit)............... (157) 149 1,296 4,409 10,363 10,128 7,951
Intangible assets....... -- -- -- -- 3,895 20,909 3,485
Total assets............ 1,097 3,395 10,258 18,242 36,860 55,891 39,241
Long-term obligations .. 182 1,315 907 413 20,636 21,343 17,108
Redeemable Preferred
Stock and put warrants.. -- -- -- -- 23,411 23,414 23,845
Shareholders' equity
(deficiency)............ 122 152 2,009 7,791 (17,344) (6,268) (17,030)
</TABLE>
- -------
(1) See Note 1 of Notes to Financial Statements of Insync for an explanation
of the number of shares used in computing pro forma net income (loss) per
share.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results
of Operations and other parts of this Prospectus contain forward-looking
statements that involve risks and uncertainties, including statements
regarding strategies, intentions or expectations. All forward-looking
statements included in this document are based on information available to the
Company on the date hereof, and the Company assumes no obligation to update
any such forward-looking statements. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth in "Risk Factors,"
"Business" and elsewhere in this Prospectus.
GENERAL
Insync is a leading provider of outsourcing services to semiconductor
equipment manufacturers for the design and manufacture of gas delivery systems
and subassemblies. The Company's gas delivery systems and subassemblies are
used principally in deposition, etch and other semiconductor wafer processing
equipment and are designed to, among other things, maintain purity in the
process chamber and shorten cycle times for equipment manufacturers, thereby
contributing to lower wafer manufacturing costs for device manufacturers. The
Company offers a full range of gas delivery solutions, including subassemblies
for integration into its customers' internally manufactured gas delivery
systems and complete systems for incorporation into its customers' products at
final assembly. In order to simplify the processes and shorten the time
required to specify, design, manufacture, install and service a gas delivery
system, the Company has recently introduced the IGS, a modular platform for
the design and manufacture of gas delivery systems. In addition, the Company
is developing proprietary design tools to allow its customers to strengthen
their gas delivery system design and specification activities.
In general, customer orders for subassemblies have shorter lead times than
orders for gas delivery systems, and subassemblies typically range in price
from $50 to $2,000 while gas delivery systems prices range from $35,000 to
$75,000 (excluding mass flow controllers) and have been as high as $200,000.
Gas delivery systems can require more intensive design services and closer
coordination between the Company and the semiconductor manufacturer that will
be the end user of the finished equipment. Sales of gas delivery systems were
$13.3 million in 1996 and $10.2 million in the six months ended June 30, 1997.
Sales of subassemblies were $72.8 million in 1996 and $24.5 million in the six
months ended June 30, 1997. See "Risk Factors--Dependence on Outsourcing;
Evolving Gas Delivery Industry."
The semiconductor equipment industry has historically experienced cyclical
periods of significant market expansion and contraction. The Company's
business grew rapidly from 1992 through 1995 during a period of market
expansion. In the first quarter of 1996, the Company completed an acquisition
which further expanded its business. The Company believes that declining
production levels and a general slowdown in the semiconductor equipment
industry began during the second quarter of 1996 and adversely affected the
business of its customers. Primarily as a result of the declining production
levels and associated changes in inventory management practices of its
customers, the Company experienced a decline in net sales from $33.1 million
in the quarter ended March 31, 1996 to $10.6 million in the quarter ended
December 31, 1996. The Company's net sales of $10.6 million during the quarter
ended December 31, 1996 represented the lowest quarterly level of net sales
during the current downturn. Net sales grew sequentially to $15.1 million and
$19.6 million in the quarters ended March 31, 1997 and June 30, 1997,
respectively. In response to the substantial decline in net sales and a
related decrease in Insync's factory utilization, the Company reduced its
workforce from 579 employees in March 1996 to 254 employees by the end of
December 1996. The Company's workforce was 372 employees at June 30, 1997, and
net sales increased from $26.7 million to $34.7 million for the six months
ended December 31, 1996 and June 30, 1997, respectively. The Company expects
that the semiconductor
19
<PAGE>
device and equipment markets will continue to be cyclical and that the
semiconductor device and equipment markets will decline in some future periods.
See "Risk Factors--Fluctuations in Operating Results" and "--Industry
Concentration; Cyclicality of Semiconductor Industry."
The Company's principal customers are Applied Materials, Lam Research,
Watkins-Johnson, and, most recently, Novellus Systems. These customers
accounted for approximately 86% of the Company's net sales during 1996 and
approximately 90% of the Company's net sales for the six months ended June 30,
1997. The Company expects that sales to a small number of key customers will
continue to account for substantially all of its net sales for the foreseeable
future. However, there can be no assurance that any of the Company's key
customers will not reduce or cease ordering the Company's systems,
subassemblies or services. See "Risk Factors--Customer Concentration."
Gross margins for the Company can fluctuate depending on product mix and
factory utilization. Generally, subassemblies generate gross margins that are
slightly higher than gas delivery systems, and gross margins for different
types of subassemblies vary. Gross margins on gas delivery systems tend to be
slightly lower than for subassemblies because a higher proportion of purchased
components and fixtures are used in finished gas delivery systems with
correspondingly higher materials handling requirements. Margins for
subassemblies are dependent to a significant degree on the cost and number of
particular components and materials, and the degree of factory utilization. In
addition, the Company is generally expected to have available production
capacity in place prior to the receipt of large customer orders. As a result,
the Company began to expand production capacity in the first six months of 1997
in anticipation of increasing customer order levels. In the event that
anticipated increases in order levels were not to materialize in the near term
or at all, the expenditures incurred by the Company in expanding its capacity
would have a material adverse effect on the Company's business, operating
results and financial condition. See "Risk Factors--Fluctuations in Operating
Results" and "--Management of Business Fluctuations."
The Company has recently increased its operating expenses in anticipation of
increasing customer orders for gas delivery systems. In general, gas delivery
systems require more engineering infrastructure than subassemblies. The Company
believes its current operating expense levels will support significantly higher
levels of revenues from gas delivery systems. However, there can be no
assurance that such anticipated growth will occur on a timely basis or at all.
On January 2, 1996, Insync acquired substantially all of the non-cash assets
and liabilities of Pullbrite, another independent provider of gas delivery
systems and subassemblies to semiconductor equipment manufacturers, for $30.0
million. As a result of declining sales to Pullbrite's major customer in 1996
and other factors, the Company recorded a $16.6 million charge for the write
off of goodwill and the reduction of the carrying value associated with the
major customer relationship. See Note 2 of Notes to Financial Statements of
Insync.
20
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth as a percentage of net sales the Company's
results of operations for the periods shown:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.................. 76.0 73.1 72.3 69.7 75.9
------- ------- ------- -------- --------
Gross profit................. 24.0 26.9 27.7 30.3 24.1
Operating expenses:
Selling, general and
administrative.............. 13.6 11.4 12.6 10.6 12.7
Research, development and
engineering................. 3.2 4.5 4.4 3.8 5.1
Write down of intangible
assets...................... -- -- 19.3 -- --
Restructuring charges........ -- -- 1.0 -- --
------- ------- ------- -------- --------
Total operating expenses... 16.8 15.9 37.3 14.4 17.8
------- ------- ------- -------- --------
Income (loss) from operations.. 7.2 11.0 (9.6) 15.9 6.3
Interest expense and other,
net........................... 1.2 0.8 3.0 2.4 4.9
------- ------- ------- -------- --------
Income (loss) before income
taxes......................... 6.0 10.2 (12.6) 13.5 1.4
Provision for income taxes..... 2.4 4.2 (5.0) 5.4 0.5
------- ------- ------- -------- --------
Net income (loss).............. 3.6% 6.0% (7.6)% 8.1% 0.9%
======= ======= ======= ======== ========
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
Net Sales
Net sales decreased by 41.7% to $34.7 million for the six months ended June
30, 1997 as compared to $59.4 million for the six months ended June 30, 1996.
During this period, net sales from gas delivery systems increased by $3.1
million or 43.7% from $7.1 million to $10.2 million while net sales from
subassemblies declined by $27.8 million or 53.2% from $52.3 million to $24.5
million. The increase in the gas delivery systems revenue resulted from the
Company's increased success in providing complete gas delivery systems. The
decrease in subassembly revenues was primarily attributable to a downturn in
the semiconductor equipment industry and a corresponding decrease in sales by
the Company to certain of its major customers. Sales to Lam Research, Applied
Materials and Watkins-Johnson declined by an aggregate of $24.1 million from
$51.5 million for the six months ended June 30, 1996 to $27.4 million for the
six months ended June 30, 1997. This decrease was partially offset by the
addition of Novellus Systems, a significant new customer.
Gross Profit
Gross profit decreased to $8.4 million or 24.1% of net sales for the six
months ended June 30, 1997 as compared to $18.0 million or 30.3% of net sales
for the six months ended June 30, 1996. The decline in gross profit was
primarily due to the Company's increase in production capacity in the first
half of 1997 following a significant reduction in its capacity as the
semiconductor equipment market declined during the second half of 1996. In
response to the Company's significant sales decline and to minimize the impact
of the industry downturn on the Company's gross profit, the Company implemented
a number of measures to reduce its production capacity, including the
consolidation of a significant amount of its Silicon Valley operations into one
location at its Milpitas facility and the reduction of its workforce from 579
employees in March 1996 to 254 employees at December 31, 1996. As the Company's
customers began to expand their production levels in the first six months of
1997, the
21
<PAGE>
Company expanded its production capacity and increased its headcount to 372 at
June 30, 1997. The Company's factory utilization levels remain below those
levels experienced in 1995 and the first six months of 1996. See "Risk
Factors--Management of Business Fluctuations."
Selling, General and Administrative
Selling, general and administrative expenses decreased 31.8% to $4.3 million
for the six months ended June 30, 1997 as compared to $6.3 million for the six
months ended June 30, 1996. The decrease was primarily due to the
implementation of several expense reduction measures, including headcount and
discretionary spending reductions, which the Company made in response to the
semiconductor equipment industry downturn. The Company believes that its
selling, general and administrative expenses will increase in absolute dollars
in the future as the Company expands its staffing and experiences higher costs
associated with being a public company.
Research, Development and Engineering
Research, development and engineering expenses decreased 17.4% to $1.9
million for the six months ended June 30, 1997 as compared to $2.3 million for
the six months ended June 30, 1996. The lower expenditures in the 1997 period
related to the Company's efforts to reduce costs and to higher expenses
incurred by the Company during the six months ended June 30, 1996 related to
the development of the IGS platform. The Company expects that research,
development and engineering expenses will increase in absolute dollars as it
continues to invest in its engineering capabilities and capacity in order to
support potential growth in the gas delivery systems business.
Interest Expense and Other, Net
Interest expense and other, net increased by 23.3% to $1.7 million for the
six months ended June 30, 1997 as compared to $1.4 million for the six months
ended June 30, 1996. The increase was primarily due to an increase in the
effective interest rate and other costs relating to the Company's bank credit
facility.
Provision for Income Taxes
Insync's effective tax rates were 37.9% and 40.2% for the six months ended
June 30, 1997 and 1996 respectively, approximating federal and statutory rates.
YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995
Net Sales
Net sales increased by 72.3% to $86.1 million in 1996 as compared to $50.0
million in 1995. The increase resulted primarily from the acquisition of
Pullbrite and, to a lesser extent, the addition of a major customer, Novellus
Systems. Net sales from Pullbrite accounted for $34.2 million of the Company's
net sales in 1996. Excluding the effect of the Pullbrite acquisition, the
Company's net sales increased from $50.0 million in 1995 to $51.9 million in
1996, an increase of 3.8%. Net sales from gas delivery systems increased in
1996 by $4.1 million or 44.6% from $9.2 million to $13.3 million while net
sales from subassemblies increased by $31.9 million or 78.4% from $40.8 million
to $72.8 million. The increase in net sales of gas delivery systems resulted
from the Company's increased success in providing complete gas delivery
systems. The increase in net sales of subassemblies was primarily due to the
acquisition of Pullbrite.
Gross Profit
Gross profit increased to $23.8 million or 27.7% of net sales in 1996 as
compared to $13.4 million or 26.9% of net sales in 1995. The increase in gross
profit reflected increased utilization of the Company's facilities during the
first half of 1996 as well as the effect of fixed costs remaining constant
against higher revenues. The increase was partially offset by a decline in the
gross profit during the latter part of the year when the Company was carrying
excess production capacity as the semiconductor equipment market declined.
22
<PAGE>
Selling, General and Administrative
Selling, general and administrative expenses increased by 94.7% to $11.1
million in 1996 as compared to $5.7 million in 1995. The increase was primarily
due to the Company's acquisition of Pullbrite and the expansion of the
Company's sales and information systems infrastructure.
Research, Development and Engineering
Research, development and engineering expenses increased by 59.2% to $3.6
million in 1996 as compared to $2.2 million in 1995 principally due to
increased expenditures for the IGS platform. The Company also increased its
engineering capacity and capabilities in order to enable it to provide
specialized services such as mechanical and system design as well as analytical
certification services in an effort to address all the gas control requirements
of its customers.
Write Down of Intangible Assets
In 1996, the Company recorded a $16.6 million write down of intangible assets
related to the write off of goodwill pertaining to the Pullbrite acquisition
and the reduction in the carrying value of a major Pullbrite customer. See Note
2 of Notes to Financial Statements of Insync.
Restructuring Charges
In 1996, the Company recorded an $858,000 restructuring charge related to
several actions including the reduction of its work force, the disposition of
unproductive assets, and facility consolidations. The restructuring was
completed in October 1996. See Note 3 of Notes to Financial Statements of
Insync.
Interest Expense and Other, Net
Interest expense and other, net were $2.6 million and $434,000 in 1996 and
1995, respectively. The increase was primarily due to the impact of interest
cost incurred on debt relating to the financing of the Pullbrite acquisition.
Provision for Income Taxes
Insync's effective tax rates were 39.9% and 41.1% for 1996 and 1995,
approximating federal and state statutory rates.
YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994.
Net Sales
Net sales increased by 142.4% to $50.0 million in 1995 as compared to $20.6
million in 1994. The increase was due to an overall expansion in the
semiconductor equipment industry and increased sales to the Company's major
customers. Net sales from gas delivery systems increased to $9.2 million in
1995 as compared to $2.6 million in 1994 while net sales of subassemblies
increased to $40.8 million in 1995 as compared to $18.0 million in 1994.
Gross Profit
Gross profit increased to $13.4 million or 26.9% of net sales in 1995 as
compared to $4.9 million or 24.0% of net sales in 1994. The increase in gross
profit reflected increased utilization of the Company's facilities as well as
the effect of fixed costs remaining constant against higher revenues. Much of
the improved utilization resulted from the Company's Austin, Texas facility,
which became fully operational in the first quarter of 1995. The increase in
gross profit was partially offset by greater gas control systems sales which
have historically had lower gross profit margins than subassembly sales.
23
<PAGE>
Selling, General and Administrative
Selling, general and administrative expenses increased by 102.9% to $5.7
million in 1995 as compared to $2.8 million in 1994. The increase was primarily
related to increased staffing and associated expenses necessary to support
Insync's increased scale of operations, including the addition of the Austin,
Texas facility.
Research, Development and Engineering
Research, development and engineering expenses increased to $2.2 million in
1995 as compared to $669,000 in 1994 due to increased expenditures for the
development of the IGS and to support the increased gas delivery systems
business.
Interest Expense and Other, Net
Interest expense and other, net were $434,000 and $230,000 in 1995 and 1994,
respectively. The increase was primarily attributable to a higher level of
outstanding notes payable.
Provision for Income Taxes
Insync's effective tax rates were 41.1% and 41.1% for years 1995 and 1994,
approximately federal and state statutory rates.
24
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth statement of operations data for the ten
quarters ended June 30, 1997, both in dollar amounts and as a percentage of net
sales. This information has been derived from the Company's unaudited financial
statements. The unaudited financial statements have been prepared on the same
basis as the audited financial statements contained elsewhere in this
Prospectus and, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of such information. Such information should be read in
conjunction with the Company's audited Financial Statements and Notes thereto
appearing elsewhere in this Prospectus. The Company's quarterly results are
subject to fluctuations and operating results for any quarter are not
necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------------------------
MAR. 31, JUN. 30, SEPT. 30, DEC. 31, MAR. 31, JUN. 30, SEPT. 30, DEC. 31, MAR. 31, JUN. 30,
1995 1995 1995 1995 1996 1996 1996 1996 1997 1997
-------- -------- --------- -------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $10,374 $12,107 $12,581 $14,907 $33,125 $26,323 $ 16,015 $10,636 $15,102 $19,577
Cost of sales........... 7,906 8,981 9,081 10,561 22,734 18,730 12,465 8,332 11,839 14,488
------- ------- ------- ------- ------- ------- -------- ------- ------- -------
Gross profit........... 2,468 3,126 3,500 4,346 10,391 7,593 3,550 2,304 3,263 5,089
Operating expenses:
Selling, general and
administrative........ 1,165 1,324 1,526 1,671 3,374 2,912 3,058 1,726 2,068 2,221
Research, development
and engineering....... 414 486 611 725 1,249 1,038 676 597 851 1,038
Write down of
intangible assets..... -- -- -- -- -- -- 16,610 -- -- --
Restructuring charges.. -- -- -- -- -- -- 1,323 (465) -- --
------- ------- ------- ------- ------- ------- -------- ------- ------- -------
Total operating
expenses.............. 1,579 1,810 2,137 2,396 4,623 3,950 21,667 1,858 2,919 3,259
------- ------- ------- ------- ------- ------- -------- ------- ------- -------
Income (loss) from
operations............. 889 1,316 1,363 1,950 5,768 3,643 (18,117) 446 344 1,830
Interest expense and
other, net............. 130 113 105 86 713 645 608 596 913 762
------- ------- ------- ------- ------- ------- -------- ------- ------- -------
Income (loss) before
income taxes........... 759 1,203 1,258 1,864 5,055 2,998 (18,725) (150) (569) 1,068
Provision for income
taxes.................. 310 501 534 743 2,036 1,199 (7,486) (63) (233) 422
------- ------- ------- ------- ------- ------- -------- ------- ------- -------
Net income (loss)....... $ 449 $ 702 $ 724 $ 1,121 $ 3,019 $ 1,799 $(11,239) $ (87) $ (336) $ 646
======= ======= ======= ======= ======= ======= ======== ======= ======= =======
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------------------------
MAR. 31, JUN. 30, SEPT. 30, DEC. 31, MAR. 31, JUN. 30, SEPT. 30, DEC. 31, MAR. 31, JUN. 30,
1995 1995 1995 1995 1996 1996 1996 1996 1997 1997
-------- -------- --------- -------- -------- -------- --------- -------- -------- --------
AS A PERCENTAGE OF NET SALES
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0 % 100.0% 100.0%
Cost of sales........... 76.2 74.2 72.2 70.8 68.6 71.2 77.8 78.3 78.4 74.0
------- ------- ------- ------- ------- ------- -------- ------- ------- -------
Gross profit........... 23.8 25.8 27.8 29.2 31.4 28.8 22.2 21.7 21.6 26.0
Operating expenses:
Selling, general and
administrative........ 11.2 10.9 12.1 11.2 10.2 11.1 19.1 16.2 13.7 11.3
Research, development
and engineering....... 4.0 4.1 4.9 4.9 3.8 3.9 4.2 5.7 5.6 5.3
Write down of
intangible assets..... -- -- -- -- -- -- 103.7 -- -- --
Restructuring charges.. -- -- -- -- -- -- 8.3 (4.4) -- --
------- ------- ------- ------- ------- ------- -------- ------- ------- -------
Total operating
expenses.............. 15.2 15.0 17.0 16.1 14.0 15.0 135.3 17.5 19.3 16.6
------- ------- ------- ------- ------- ------- -------- ------- ------- -------
Income (loss) from
operations............. 8.6 10.8 10.8 13.1 17.4 13.8 (113.1) 4.2 2.3 9.4
Interest expense and
other, net............. 1.3 0.9 0.8 0.6 2.2 2.4 3.8 5.6 6.1 3.9
------- ------- ------- ------- ------- ------- -------- ------- ------- -------
Income (loss) before
income taxes........... 7.3 9.9 10.0 12.5 15.2 11.4 (116.9) (1.4) (3.8) 5.5
Provision for income
taxes.................. 3.0 4.1 4.2 5.0 6.1 4.6 (46.7) (0.6) (1.6) 2.2
------- ------- ------- ------- ------- ------- -------- ------- ------- -------
Net income (loss)....... 4.3% 5.8% 5.8% 7.5% 9.1% 6.8% (70.2)% (0.8)% (2.2)% 3.3%
======= ======= ======= ======= ======= ======= ======== ======= ======= =======
</TABLE>
25
<PAGE>
Quarterly net sales increased in each quarter of 1995 reflecting increased
demand from the Company's semiconductor equipment customers, and increased by
$18.2 million or 122.1% in the first quarter of 1996 as compared to $14.9
million in the fourth quarter of 1995 primarily due to the acquisition of
Pullbrite. Excluding net sales attributable to the Pullbrite acquisition,
Insync's net sales for the fourth quarter of 1995 and the first quarter of 1996
grew 8.9%, or from $14.9 million to $16.2 million, respectively. The Company
experienced a significant decline in net sales beginning in the first quarter
of 1996 to its major customers. This decline was primarily related to a
downturn in the semiconductor equipment industry and the ensuing reduction of
inventory levels by the Company's customers. The Company experienced increases
in net sales for the first two quarters of 1997 reflecting increased demand
from the Company's customers. Gross profit began declining during the second
half of 1996 primarily due to the Company's excess production capacity as the
semiconductor equipment market declined. Gross profit was additionally impacted
during the third quarter of 1996, when the Company recorded a $331,000 sales
return reserve in connection with a decision to permit a major customer to
return product. In the fourth quarter of 1996, the Company's negotiations with
this major customer resulted in no product being returned and the previously
provided sales return reserve was reversed. Gross profit was also favorably
impacted in the fourth quarter of 1996, when the Company reversed a $150,000
warranty accrual established in 1995 for a specific product warranty exposure
which no longer existed. Excluding these items, the gross profit for the fourth
quarter of 1996 was $1.8 million or 17.1% of net sales.
In response to the declining sales in 1996, the Company reduced its workforce
and recorded a related charge to operating expenses of $330,000 during the
second quarter of 1996. During the third quarter of 1996, the Company reversed
a $365,000 bonus accrual which had been recorded during the first quarter of
1996, pursuant to its management bonus program and was no longer payable due to
the Company's losses. Excluding the write down of intangibles and restructuring
charges in the third quarter of 1996, operating expenses declined significantly
in the fourth quarter of 1996 as compared to the third quarter of 1996 due to
the implementation of several additional expense reduction measures, including
headcount and discretionary spending reductions in response to the
semiconductor industry equipment downturn and the partial reversal of the
restructuring reserve due to the favorable outcome of a lease amendment. The
significant increase in interest expense in 1996 as compared to 1995 was
primarily due to the impact of interest incurred as a result of increased debt
related to the financing of the Pullbrite acquisition. The increase in interest
expense in 1997 was primarily due to an increase in the effective interest rate
and other costs relating to the Company's bank credit facility.
The Company's quarterly operating results have in the past and may in the
future fluctuate significantly depending on a number of factors, including but
not limited to: the timing and product mix of significant orders and shipping
schedules of its customers; industry-wide changes in the demand for
semiconductors or for semiconductor manufacturing equipment; the ability of the
Company to design, manufacture, test and deliver defect-free gas delivery
systems and subassemblies in a timely and cost effective manner; the gain or
loss of any significant customer; competitive pressures; the timing of product
announcements by the Company's competitors, its customers or their competitors;
seasonal changes in purchases of semiconductor manufacturing equipment; the
availability and cost of components from the Company's suppliers; and the
availability of production capacity. For these and other reasons, results of
operations in any period should not be considered indicative of the results to
be expected for future periods and there can be no assurance that the Company
will be profitable in any future period. See "Risk Factors--Fluctuations in
Operating Results."
LIQUIDITY AND CAPITAL RESOURCES
Insync has primarily financed its operations and capital expenditures through
cash flows from operations, the private sale of equity securities, bank credit
facilities and long-term and short-term notes. Insync's principal sources of
liquidity as of June 30, 1997 consisted of $929,000 of cash and cash
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equivalents and $3.5 million available under a $5 million line of credit. The
Company's bank credit facility includes this line of credit and an outstanding
term loan of $24.0 million at June 30, 1997 which is due in quarterly
installments through the year 2000. Borrowings bear interest at the bank's
prime rate (8.5% at June 30, 1997) plus 2% and are secured by substantially all
of the Company's assets. The bank credit facility subjects the Company to
certain financial covenants. See "Use of Proceeds," and Notes 5, 7 and 13 of
Notes to Financial Statements of Insync.
Cash provided (used) by operations was $(1.1) million, $7.5 million, $2.3
million and $(1.8) million for the six months ended June 30, 1997 and for the
years 1996, 1995, and 1994, respectively. For the six months ended June 30,
1997, the primary source of cash was an increase in accounts payable of $2.7
million while the significant uses of cash included increases in accounts
receivable of $3.6 million and inventory of $2.3 million. In 1996, the primary
sources of cash included decreases in accounts receivable and inventory of $7.5
million and $1.4 million, respectively. The decreases were partially offset by
decreases in accounts payable of $5.9 million and accrued liabilities of $1.8
million. For the years 1995 and 1994, increases in accounts receivable and
inventory of $4.8 million and $6.4 million, respectively, were the primary uses
of cash due to the significant increase in net sales during such periods. The
primary sources of cash for 1995 and 1994 were increases in accounts payable
and other accrued liabilities of $3.2 million and $3.4 million, respectively.
Cash provided by (used) for investing activities was $136,000, $(19.2)
million, $(3.1) million and $(722,000) for the six months ended June 30, 1997
and for the years 1996, 1995 and 1994, respectively. The significant use for
investing activities in 1996 was primarily related to the purchase of Pullbrite
while the uses for the six months ended June 30, 1997, and for 1995 and 1994
were primarily due to capital expenditures at both the Company's Milpitas,
California and Austin, Texas facilities.
Financing activities provided (used) cash of $(938,000), $14.3 million,
$912,000 and $2.5 million for the six months ended June 30, 1997 and for the
years 1996, 1995 and 1994, respectively. Repayment of debt of $3.0 million was
the major use of cash for the six months ended June 30, 1997 while borrowings
under the Company's line of credit of $1.5 million was the major source of
cash. In 1996, notes payable borrowings provided cash of $39.3 million. This
was partially offset by repayments of notes payable in the amount of $14.6
million. Additionally, repayment of subordinated notes payable used cash of
$15.0 million. A private placement of Redeemable Preferred Stock in the amount
of $23.5 million (net of issuance costs) provided cash from financing
activities. This amount was partially offset by a repurchase of Common Stock of
$19.3 million. In 1995, cash was provided by a private placement of Common
Stock in the amount of $1.9 million which was offset by repayments of
borrowings under the line of credit in the amount of $1.1 million. In 1994,
cash was provided by net borrowings under the line of credit in the amount of
$2.2 million.
The Company believes that the net proceeds and the sale of the Common Stock
offered hereby, together with its current cash balances, cash available under
its bank credit facility and cash from operations will be sufficient to meet
its working capital and capital expenditure requirements for at least the next
12 months. However, the Company may require additional funds to support its
working capital requirements or for other purposes, particularly to the extent
that the Company experiences growth in the future. There can be no assurances
that any necessary additional financing will be available to the Company on
commercially reasonable terms, if at all. In addition, although there are no
present understandings, commitments or agreements with respect to any
acquisition of businesses, products or technologies, the Company, from time to
time, evaluates potential acquisitions of other businesses, products and
technologies that are complimentary to those of the Company, and may in the
future require additional equity or debt financings to consummate such
acquisitions. See "Risk Factors--Need for Additional Capital."
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BUSINESS
This Business section and other parts of this Prospectus contain forward-
looking statements that involve risks and uncertainties, including statements
regarding strategies, intentions or expectations. All forward-looking
statements included in this document are based on information available to the
Company on the date hereof, and the Company assumes no obligation to update
any such forward-looking statements. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth in "Risk Factors" and
elsewhere in this Prospectus.
INTRODUCTION
Insync is a leading provider of outsourcing services to semiconductor
equipment manufacturers for the design and manufacture of gas delivery systems
and subassemblies. The Company's gas delivery systems and subassemblies are
used principally in deposition, etch and other semiconductor wafer processing
equipment and are designed to, among other things, maintain purity in the
process chamber and shorten cycle times for equipment manufacturers, thereby
contributing to lower wafer manufacturing costs for device manufacturers. The
Company's principal customers are Applied Materials, Lam Research, Watkins-
Johnson and, most recently Novellus Systems, four major North American
semiconductor equipment manufacturers. The Company offers a full range of gas
delivery capabilities, including subassemblies for integration into its
customers' internally manufactured gas delivery systems and complete systems
for incorporation into its customers' products at final assembly. In order to
simplify the processes and shorten the time required to specify, design,
manufacture, install and service a gas delivery system, the Company has
recently introduced the IGS, a modular platform for the design and manufacture
of gas delivery systems. In addition, the Company is developing proprietary
design tools to allow its customers to strengthen their gas delivery system
design and specification activities. The Company's objective is to be the
primary provider of outsourcing design and manufacturing services for gas
delivery to leading semiconductor equipment manufacturers.
- ------- ------------- -------------
INSYNC Systems SEMICONDUCTOR Deposition, Etch SEMICONDUCTOR
SYSTEMS Subassemblies EQUIPMENT and other Process DEVICE
- ------- IGS MANUFACTUERS Equipment MANUFACTURERS
------------- -------------
INDUSTRY BACKGROUND
Advances in design and manufacturing process technologies have enabled the
semiconductor industry to continue to produce devices with increased speed and
performance and reduced geometries. The process technologies necessary to
manufacture these advanced devices have required increasingly complex and
sophisticated process equipment that have significantly increased the costs of
wafer fabrication facilities ("fabs") and have increased the manufacturing
challenges for semiconductor device manufacturers. Today's advanced technology
fabs typically cost in excess of $1 billion, with a significant portion
directed to critical "front-end" manufacturing process equipment which build
the layers on semiconductor wafers which make up a single semiconductor
device. More than 40% of all semiconductor equipment, which in turn perform
more than 70% of the process steps, requires the introduction, management and
evacuation of process gases. These steps include the deposition of insulating
or conducting materials onto a wafer; the etching of the wafer to selectively
remove deposited material; and other process steps. According to VLSI
Research, in 1996, the market for deposition and etch equipment was $10.4
billion. Deposition and etch processes require highly controlled process
environments and chemistry and, as a result, the equipment used for deposition
and etch is complex and
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incorporates sophisticated systems to control various process gases and the
conditions in which they are used. In an attempt to continue the historical
trends of increasing device density and performance while maintaining or
improving manufacturing yield, device manufacturers continuously demand
innovations in the core process technologies underlying deposition and etching,
among others. In order to meet such demands, equipment manufacturers have been
required to repeatedly improve their process equipment in many respects,
including the inclusion of increasingly complex and sophisticated gas delivery
systems.
Gas delivery systems and subassemblies are critical to the equipment's
ability to perform the deposition, etching and other process steps required in
semiconductor device production. These process steps frequently include the
precise introduction of various high-purity process gases, the exact management
of process chamber conditions and the evacuation of process gases from the
chamber before each new step. Gas delivery systems also play a critical role in
controlling contamination in the semiconductor manufacturing process.
Maintenance of gas purity and the reduction of particle contaminants are
increasingly important as geometric reductions in feature sizes and greater
densities magnify the effect of impurities on manufacturing yields. In order to
achieve higher yields, greater throughput and higher levels of equipment
utilization, semiconductor device manufacturers require equipment that
incorporates increasingly complex and specialized gas delivery systems that,
among other things, minimize chemical particle contamination.
[DIAGRAM 29-A TO BE INSERTED HERE]
[A diagram depicting typical multi-chamber semiconductor process equipment,
highlighting and labeling gas delivery systems and subassemblies.]
The size of gas delivery systems and the number of components used in such
systems and subassemblies have increased steadily. Gas delivery systems are
typically comprised of subassemblies of numerous discrete components such as
filters, purifiers, regulators, transducers (monitors), manifolds, valves and
mass flow controllers whose role in the aggregate is to maintain gas purity,
deliver required gas to the process equipment, measure gas flow rates,
precisely time the introduction and mixture of
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process gases to the process chamber and evacuate residual gases from the
chamber in preparation for the next process step. Today, an advanced gas
delivery system for etch can be as large as 16 cubic feet and incorporate more
than 200 components, many of which are available from multiple vendors.
Further, equipment manufacturers have customarily offered their device
manufacturer customers the opportunity to specify discrete gas delivery
component parts from particular vendors, even though such component parts
perform the same functions as parts which could be obtained from another
vendor. Thus, the procurement of various discrete gas delivery components has
become increasingly costly and time consuming. As a result of such broad
component availability, device manufacturers have tended to specify highly
customized gas delivery systems which often require ongoing modifications up
until the final stages of assembly. These customization requirements, when
coupled with the specification by customers of multiple discrete component
parts from particular vendors, have required equipment manufacturers to develop
capabilities in specialized and small lot manufacturing, to maintain large gas
delivery component inventories and to repeatedly design iterations for gas
delivery systems and subassemblies. At the same time, the period for delivering
and installing semiconductor equipment in a fab has become increasingly
compressed because significant delays in constructing, in equipping, or in
achieving full operating utilization of a fab result in higher start up costs,
lost revenue and market share, lower operating margins and ultimately, lower
profits for semiconductor device manufacturers. The effective and timely
manufacture of the gas delivery system is crucial to an equipment
manufacturer's ability to install its equipment on time in a fab. As a result,
equipment manufacturers must be able to respond quickly and effectively to the
last-minute reconfiguration requests and quick turn around demands of device
manufacturers.
The growing complexity of gas delivery systems and rising demands by device
manufacturers for their last minute customization and rapid turnaround have
placed increasing demands on semiconductor equipment manufacturers for
resources dedicated to the design and manufacture of gas delivery systems and
to the procurement and stocking of components. In contrast to core process
technologies, the Company does not believe that gas delivery systems have been
a competitive differentiator among equipment manufacturers. The Company
believes that equipment manufacturers are increasingly required to develop
innovations to their core deposition, etch and other process technologies, as
semiconductor wafer sizes increase from 8 to 12 inches, line widths decrease to
0.25 microns and below, and semiconductor densities increase. The Company
believes that the desire of equipment manufacturers to concentrate on their
core competencies, and to ensure that gas delivery requirements can be met in a
timely and cost effective manner has led to outsourcing gas delivery systems to
third parties, and to attempts to create gas delivery systems which are more
capable of standardized volume manufacture rather than the present specialized,
small lot manufacturing approach. Many equipment manufacturers outsource the
manufacture of gas delivery subassemblies, but then provide final gas delivery
system integration in house. In some cases, equipment manufacturers outsource
the design and manufacture of the entire gas delivery system. In general, the
design and manufacture of entire systems requires greater infrastructure and
expertise than subassembly manufacturing in order to meet turnaround and
performance requirements, and equipment manufacturers' requirements for
independent suppliers of gas delivery systems are more comprehensive than for
providers of gas delivery subassemblies.
The Company believes that equipment manufacturers are seeking more
standardized volume manufacturing and as a result are encouraging device
manufacturers to eliminate the specification of large numbers of discrete
component parts from particular vendors, and instead to accept a more limited
number of "modular" choices for their gas delivery needs. The Company believes
that the drive toward a modular approach will become increasingly important as
new fabs are constructed to manufacture 12 inch wafers. The Company believes
that this simplified "modular" approach has the potential to reduce the number
of vendors and specific parts required to be ordered for a given gas delivery
system, and thus reduce cycle time and inventory management, while enabling the
cost savings associated with volume manufacturing.
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The Company believes that semiconductor equipment manufacturers are
increasingly seeking independent providers that are focused exclusively on the
development and production of gas delivery systems and subassemblies. As
evolving process technologies have become more complex, the Company believes
that equipment manufacturers will seek independent providers that can provide
precisely fabricated gas delivery subassemblies and, increasingly, complete
traditional or modular gas delivery systems, more quickly and cost effectively
than their internal capabilities and resources allow. These independent
providers may benefit from the efficiencies associated with servicing multiple
equipment manufacturers and may provide the expertise and rapid turnaround
capabilities necessary to meet the requirements of the ultimate device
manufacturer customers. The Company believes that as the semiconductor
industry evolves toward 12 inch wafers, the ability of independent providers
to provide a more standardized modular gas delivery platform will become
increasingly important.
INSYNC SOLUTION
The Company is a leading provider of outsourcing services to semiconductor
equipment manufacturers for the design and manufacture of gas delivery systems
and subassemblies. The Company believes its outsourcing services reduce its
customers' total costs by shortening product delivery cycle times, reducing
inventory and materials procurement costs, eliminating redundant work,
enhancing information exchange, and coordinating increasingly complex
manufacturing and design processes. With extensive expertise in gas delivery
requirements and the ability to design and manufacture complex customized
systems and subassemblies within the short time constraints demanded by
equipment manufacturers, the Company enables its customers to focus resources
on core process technologies. The Company has also recently introduced the
IGS, a modular platform for gas delivery that is designed to simplify the
specification, configuration, manufacturing and serviceability, and reduce
cycle time and overall semiconductor process equipment cost. The Company
believes that its customers benefit from the expertise and efficiencies that
the Company derives from providing outsourced gas delivery solutions to
multiple leading equipment manufacturers.
STRATEGY
The Company's objective is to be the primary provider of outsourcing design
and manufacturing services for gas delivery to leading semiconductor equipment
manufacturers. To accomplish this objective, Insync seeks to develop and
provide solutions which allow equipment manufacturers to fully outsource their
gas delivery requirements and consistently satisfy their customers' demands
for on-time delivery of reliable process equipment. To fulfill its objective,
the Company intends to:
Extend Leadership in Gas Delivery. The Company has developed significant
expertise in key gas delivery disciplines such as gas chemistry, physics,
thermodynamics and ultra-clean manufacturing. The Company's key customers
currently include three of the five largest North American process equipment
manufacturers. The Company is seeking to extend its leadership position by
strengthening its close working relationships both with its equipment
manufacturing customers and their customers (semiconductor device
manufacturers) in order to increase its knowledge and understanding of gas
delivery in the actual fab operating environment. The Company believes these
relationships provide it with an early insight into advances in semiconductor
manufacturing technologies and an opportunity to develop innovations and
technologies in response to the current and emerging gas delivery needs of
device manufactures. For example, the IGS, the Company's modular platform for
designing and manufacturing gas delivery systems, was developed to address a
perceived need for simplification, modularity and rapid configurability which
the Company believes will become increasingly important factors as the
industry transitions to 12 inch wafer processing equipment. In addition, the
Company is developing proprietary design tools to allow its customers to
simplify their gas delivery system design and specification activities.
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Expand Gas Delivery Systems Business. The Company is seeking to expand the
gas delivery systems sector of its business which it believes represents a
significant future market opportunity. The Company believes that, to the
extent the complexity and resource demands of gas delivery systems continue to
distract equipment manufacturers' from their core competencies, they will
increasingly outsource their gas delivery requirements, including the
outsourcing of complete gas delivery systems. The Company believes that
existing and potential customers will view a significant gas delivery system
capability as an important factor in selecting an outsource gas delivery
provider. In order to expand its gas delivery system capacity and
capabilities, the Company has tailored its manufacturing operations to include
a dedicated gas delivery system manufacturing capability.
Strengthen Relationships with Customers and Suppliers. The Company intends
to continue to integrate its business processes with those of its key
customers and suppliers in order to: reduce total costs for its customers, its
suppliers and the Company; eliminate redundant work; enhance information
exchange; coordinate increasingly complex manufacturing and design processes;
and to enable its customers to shorten their product delivery cycle times. For
example, by providing substantially all of the gas delivery needs of Watkins-
Johnson, Insync has reduced this customer's costs by reducing the customer's
design engineering expenses, redesigning critical components and significantly
curtailing redundant overhead expenses. The Company believes that the
establishment of such close relationships improves its potential to supply a
greater proportion of its existing customers' gas delivery needs and may
attract new customers and suppliers.
Leverage Manufacturing Capabilities. The Company is developing world-class
manufacturing capabilities that equal or exceed those of its key customers and
competitors with respect to gas delivery systems and subassemblies. The
Company believes that manufacturing capabilities, as well as capacity, are a
critical determinant in an equipment manufacturer's decision to outsource its
gas delivery system and subassembly needs. The Company believes its
manufacturing process capabilities and capacity enable it to provide multiple
and varied customers with complex, customized gas delivery systems and
subassemblies within the short time demands of equipment manufacturers. This
assists its customers in maintaining or reducing their cycle times and
maintaining high quality standards on a cost-competitive basis. The Company
has invested significant resources in recent years in new manufacturing
facilities and in the redesign of its manufacturing processes, including the
establishment of new protocols for tooling and automation and specific
manufacturing cells for gas delivery systems, for subassemblies and for
"quick-turn" projects to accommodate last-minute changes and rush orders.
Particularly in the area of gas delivery system manufacturing, the Company has
extended its capabilities and expanded its capacity to levels that it believes
exceed current demand to demonstrate its ability to meet the needs of
customers and potential customers.
Promote Modular Platform Approach. The Company believes that a shift to
"modular" approaches to gas system design and manufacture from the present
practice of specifying a large number of discrete component parts of specified
manufacturers, is an essential step in the ability to reduce cycle time,
reduce inventory management and achieve the cost savings associated with
volume manufacturing of standard products. Although the Company does not
anticipate that modular gas delivery systems will be deployed in high volumes
in equipment designed for traditional gas systems, the Company believes that
the transition to 12 inch wafer processing equipment will present an
opportunity for widespread adoption of modular gas systems. In anticipation of
this opportunity, the Company developed the IGS, a modular platform for gas
delivery systems in order to, among other things, significantly reduce the
required number of discrete components and reduce cycle times for designing
and manufacturing gas delivery systems.
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SYSTEMS AND SERVICES
The Company is a leading provider of outsourcing services to semiconductor
equipment manufacturers for the design and manufacture of gas delivery systems
and subassemblies. Gas delivery systems and subassemblies are used principally
in deposition, etch and other processing equipment. The Company's systems and
services are designed to, among other things, maintain purity in the process
chamber and shorten cycle times for equipment manufacturers, thereby
contributing to lower wafer manufacturing costs for device manufacturers.
The manufacture of gas delivery systems and subassemblies is a highly
specialized process. The various components and materials used in each product
must be inspected and certified for purity and usability. The infrastructure
must be precisely sized and assembled to fit the individual semiconductor
equipment manufacturers' specifications and to ensure that each connection is
free of oxidation and corrosion. Inspection and testing procedures must be
rigorous and exact to insure that high purity standards have been maintained.
Gas Delivery Systems. The Company's gas delivery systems regulate the exact
flow, pressure, purity and mixing of the gases to the process chamber,
functions that are critical to successful semiconductor manufacturing.
Production of these complex systems involves conceptual system design,
mechanical design, materials procurement and management, quality assurance,
fabrication and assembly of various components and product testing and
analytical certification. The Company's systems are most frequently used on
etch and deposition process equipment such as Lam Research's Rainbow series,
Watkins-Johnson's APCVD-1000 and Novellus System's Speed series. Prices of the
Company's gas delivery systems vary according to size, complexity and number
of components in the system, and generally range between $35,000 and $75,000
(excluding mass flow controllers) and have been as high as $200,000.
Insync is committed to being the market leader in gas delivery for
semiconductor equipment manufacturers by simplifying the processes and
shortening the time required to specify, design, manufacture and install a gas
delivery system. The Company believes that providing these benefits to
semiconductor equipment manufacturers will encourage them to adopt the Company
as their primary outsourced gas delivery system provider. Accordingly, the
Company has devoted a significant amount of its research, development and
engineering efforts in the past three years towards the development of the
IGS, the Company's modular platform for systems.
The Company introduced the IGS in June 1997. Although net sales attributable
to the IGS have not been material to date, the Company believes the IGS will
reduce total gas delivery system costs and permit users to: reduce cycle time
for manufacturing gas delivery systems; reduce gas delivery system design
expenses; reduce equipment footprint to better utilize expensive fab clean
room space; reduce the required number of discrete components; increase gas
delivery system performance and overall equipment utilization in certain
processes; reduce contamination through moisture reduction and shortened flow
paths for gases; and reduce time for field modifications and maintenance
through its modular design. There can be no assurance that the IGS platform
will achieve wide market acceptance. See "Risk Factors--Evolving Gas Delivery
Industry; Dependence on Outsourcing" and "--Rapid Technological Change."
Subassemblies. Subassemblies are customized configurations of components
such as regulators, valves, filters and fittings. The Company manufactures
subassemblies separately for its customers and also combines them to form the
core of its gas delivery systems. Subassemblies also serve as interconnections
between the gas delivery systems, the process chambers and the vacuum pumps
located in the fab. Semiconductor equipment manufacturers require numerous
subassemblies, often in multiple configurations, to support the gas delivery
requirements of their customers. The Company's
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subassemblies range in price from approximately $50 to over $2,000. The Company
believes that subassemblies will continue to be a significant source of its net
sales.
The various processes and procedures required to produce gas delivery
products generally must be accomplished rapidly due to the "last minute" design
nature of gas delivery configurations. The Company believes the ability to
produce subassemblies rapidly is an important competitive factor. Insync's
manufacturing process generally enables the Company to provide rapid
fabrication of complex subassemblies in between two and 72 hours. See "Risk
Factors--Failure to Meet Customer Performance Criteria; Risk of Relays or
Defects."
Services. The Company provides specialized services in an ongoing effort to
address all the gas delivery requirements of its semiconductor equipment
manufacturer customers. Specifically, the Company provides assistance in
mechanical and system design as well as analytical certification services. For
example, the Company has redesigned a gas delivery system for a key customer,
which substantially improved overall equipment performance and reliability and
reduced field service costs by approximately one million dollars during the 12
month period following deployment of the redesigned system. Mechanical design
services include the design of new gas delivery systems and the redesign of
existing gas delivery systems. The design process includes concept evaluation,
cost analysis, design and documentation. Analytical certification services
generally include the moisture and particulate evaluation of components,
subassemblies and gas delivery systems.
CUSTOMERS
The Company is a leading independent provider of gas delivery systems and
subassemblies to four major North American semiconductor equipment
manufacturers: Applied Materials, Lam Research, Watkins-Johnson and Novellus
Systems. In addition, the Company has sold gas delivery systems and
subassemblies to numerous other semiconductor equipment manufacturers. Applied
Materials, Lam Research and Watkins-Johnson each represented in excess of 10%
of the Company's net sales during both 1996 and the six months ended June 30,
1997. These three, together with Novellus Systems, represented approximately
86% of the Company's net sales during 1996 and approximately 90% of its net
sales for the six months ended June 30, 1997. The Company believes that its
ongoing relationships with these major companies will enhance its ability to
stay abreast of the latest developments in gas delivery system requirements and
technologies.
The Company expects that a significant portion of its net sales will continue
to be derived from sales to a limited number of customers for the foreseeable
future. The Company's operating results could be materially adversely affected
by any loss of business from, the cancellation of orders by, or decreases in
prices of products sold to, any of these customers. See "Risk Factors--Customer
Concentration," "--Dependence on Selection as Provider for New Products" and
"--Dependence on Outsourcing; Evolving Gas Delivery Industry."
MARKETING, SALES AND SUPPORT
The Company's ability to increase its net sales is largely dependent upon
maintaining its role as a primary supplier of gas delivery products to its
existing customers, its ability to continue to increase its capacity in support
of its customers' growth and its success in adding new customers. Each of the
Company's four key customers is serviced by a customer specific team. The teams
are comprised of sales managers, sales support personnel, engineers and
manufacturing managers who implement and integrate the multiple specialized
services required to complete a customized order. In addition, the teams assist
in the design and implementation of various cooperative projects with
customers, including those that eliminate unnecessary processes and costs and
those which provide support before, during and after orders are received. The
Company believes that it has close working relationships with its key customers
and that these relationships help it to continually forecast requirements for
inventory and manufacturing
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capacity, which allow it to plan resources so that customer demands can be
satisfied in a timely manner. As a principal element of its marketing and
support strategy, Insync concentrates on pursuing the integration of its
business processes and information systems with those of its customers to
provide both significant improvements in cycle time and the reduction of total
costs for key customers and the Company. The Company also maintains an
engineering group which works directly with its customers' technical personnel
on-site to produce innovative technology and to increase the Company's
understanding of its customers' gas delivery system needs.
RESEARCH, DEVELOPMENT AND ENGINEERING
The market for semiconductor manufacturing equipment is characterized by,
among other things, rapid technological change. As more process steps are
required and device geometries are reduced in the production of semiconductors,
the risks of contamination also increase. The increasing complexity of the
wafer fabrication process has led to the requirement for increasingly complex
and precise gas delivery systems and subassemblies. The Company believes that
the continued and timely development of new solutions and manufacturing methods
are essential for it to maintain its competitive position. The Company works
directly with semiconductor equipment and semiconductor device manufacturers to
develop gas delivery technologies that exceed the device manufacturers'
requirements for purity and that improve the throughput of fabs and decrease
the time to full manufacturing utilization.
As of June 30, 1997, the Company had 44 full time employees in research,
development and engineering. The Company incurred research, development and
engineering expenses of $699,000, $2.2 million, $3.6 million and $1.9 million
during 1994, 1995 and 1996 and the six months ended June 30, 1997,
respectively, and expects to continue to increase such expenditures in the
future. The Company also intends to continue to leverage its research and
development efforts by engaging in projects with its customers and other third
parties. See "Risk Factors--Rapid Technological Change."
MANUFACTURING
The Company believes that advanced manufacturing process capabilities and the
ability to increase manufacturing capacity concurrent with the expanding
requirements of semiconductor equipment manufacturers are critical competitive
factors in the gas delivery marketplace. The Company currently offers its
customers proprietary manufacturing methods, including automated stainless
steel tube cutting, manufacturing and tooling protocols and specialized tubing
which produce less corrosion and correspondingly less contamination in the
production environment. Other manufacturing techniques in which the Company has
significant expertise include patented moisture reduction methods, and
electropolishing techniques for reduction of contamination.
The Company's manufacturing activities consist of a multi-step process which
can include assembly and testing of subassemblies and their integration into
finished gas delivery systems. Stringent cleanliness controls are present
throughout the manufacturing process and testing areas of production to reduce
particle contamination. Much of the assembly and testing of the Company's
systems are conducted in clean room environments. Prior to shipping a completed
product, the customers' engineers may perform acceptance tests at the Company's
facilities. After passing the acceptance tests, the gas delivery system or
subassembly is packaged in a clean room environment and prepared for shipment.
The Company is in the process of installing a new management information
system which it anticipates will enable it to maintain high manufacturing
standards at significantly increased production levels and to interface
directly with the information systems of its customers. The Company intends to
continue to strive for improvements in processes, training, tool development
and internal organization which the Company believes will contribute to lower
costs and improve on-time performance. There can be no assurance, however, that
the Company will successfully implement such installation or achieve such
improvements or that such improvements, if achieved, will result in lower costs
or on-time performance.
35
<PAGE>
The Company procures certain components and raw materials included in its
products from single source suppliers or a limited group of suppliers. Most
single source supply requirements result from specification of particular
components by semiconductor device manufacturers. To date, the Company has
generally been able to obtain adequate supplies of such components and raw
materials in a timely manner. However, disruption or termination of certain of
these sources without adequate or timely replacement sources could have a
material adverse effect on the Company's operations. The Company believes that
alternative sources could be obtained and qualified to supply these products,
if necessary. See "Risk Factors--Management of Business Fluctuations" and "--
Sole or Limited Sources of Supply."
COMPETITION
The Company believes that competition in the gas delivery market is intense
and likely to increase substantially. Traditionally, gas delivery systems and
subassemblies have been primarily manufactured internally by semiconductor
equipment manufacturers. While these equipment manufacturers are significant
customers or potential customers of the Company, companies including Applied
Materials and Lam Research continue to produce significant quantities of gas
delivery systems internally. For a variety of reasons, including any downturn
or slowdown in the semiconductor equipment industry, there can be no assurance
that semiconductor equipment manufacturers will not elect to utilize their
internal manufacturing capacity to manufacture a greater percentage or all of
their gas delivery requirements. The Company's competitors also include
numerous privately and publicly held independent gas delivery providers, mass
flow controller companies and others. The Company competes with these
independent gas delivery providers, mass flow controller companies and other
companies on the basis of an ability to: provide advanced system design and
engineering services; offer adequate manufacturing capacity to meet customers'
cycle time requirements; price competitively; provide outstanding equipment
performance, reliability and quality; maintain sufficient financial resources;
deliver superior customer service; and, support and maintain good relationships
with customers and parts suppliers. The Company believes it presently competes
favorably with respect to these factors.
Other companies not currently offering such systems, including gas suppliers,
may attempt to enter and develop products for this market or to develop
alternative technologies which could reduce the need for the Company's
products. The trend towards consolidation in the semiconductor equipment
industry has made it increasingly important to have the financial resources and
manufacturing capacity necessary to meet the requirements of large equipment
manufacturers, to fund customer service and support, and to invest in both
product and process research and development. Current and potential competitors
may have substantially greater financial resources, name recognition and more
extensive engineering, manufacturing, marketing and customer service and
support capabilities than the Company. In addition, most of the Company's key
customers have established relationships with one or more of the Company's
competitors as additional or alternative providers, which the Company believes
tends to further intensify competition and may limit the Company's ability to
capture a greater percentage of a customer's outsourced gas delivery systems
requirements. The Company expects its current competitors to continue to
improve the design and performance of their existing products and processes,
and to introduce new products and processes with improved performance
characteristics and/or lower prices. New product introductions or product
announcements by the Company's competitors could cause a decline in sales or
loss of market acceptance of the Company's existing products. Moreover, such
increased competitive pressure could lead to intensified price competition,
which could have a material adverse effect on the Company's business, operating
results and financial condition. There can be no assurance that the Company
will be able to compete successfully in the future.
BACKLOG
As of June 30, 1997, the Company's backlog was approximately $9.9 million.
The Company includes in its backlog only those customer orders for systems and
subassemblies for which it has accepted
36
<PAGE>
purchase orders and assigned shipment dates within the following 12 months.
Industry practice allows the customer to cancel or reschedule orders prior to
shipment with liability only for purchased materials and manufacturing steps
completed as of the date of cancellation. Accordingly, the Company's backlog at
a particular date may not necessarily be representative of actual sales for any
succeeding period.
INTELLECTUAL PROPERTY
The Company relies on a combination of patent, copyright, trademark and trade
secret laws, nondisclosure agreements and other intellectual property
protection methods to protect its proprietary technology. Although the Company
currently holds two patents and has three pending patent applications in the
United States, the Company believes that patents are of less significance in
this industry than such factors as innovative skills, technical expertise and
know-how of its personnel. There can be no assurance that the Company's
competitors will not be able to legally ascertain the nonpatented proprietary
information embedded in the Company's gas delivery systems, in which case the
Company may be precluded from preventing the use of such information. To the
extent the Company elects to assert its patent rights, there can be no
assurance that any claims of the Company's patents will be sufficiently broad
to protect the Company's technology. In addition, there can be no assurance
that any patents issued to the Company will not be challenged, invalidated or
circumvented, that any rights granted thereunder will provide adequate
protection to the Company, or that the Company will have sufficient resources
to prosecute its rights.
Although the Company has not received any notices from third parties alleging
infringement claims, there can be no assurance that infringement claims by
third parties or claims for indemnification resulting from infringement claims
will not be asserted in the future or that such assertions, if proven to be
true, will not materially adversely affect the Company's financial condition,
business and results of operations. If any such claims are asserted against the
Company, the Company may seek to obtain a license under the third party's
intellectual property rights. There can be no assurance that a license will be
available on reasonable terms or at all. The Company could decide, in the
alternative, to resort to litigation to challenge such claims. Such challenges
could be extremely expensive and time consuming. Adverse determinations in any
litigation could subject the Company to significant liabilities to third
parties, require the Company to seek licenses from third parties and prevent
the Company from manufacturing and selling its products. Any of these
developments could have a material adverse effect on the Company's business,
financial condition and results of operations.
EMPLOYEES
As of June 30, 1997, Insync had a workforce consisting of 324 full time
employees and 48 persons employed on a temporary basis. No employee of the
Company is currently represented by a labor union. Management considers its
employee relations to be good. The Company believes that its future success is
dependent to a significant degree on its being able to continue to attract and
retain skilled personnel.
FACILITIES
The Company maintains its headquarters in Milpitas, California in a leased
71,000 square foot facility. In addition to housing its corporate offices, the
facility is the center for one of the Company's three manufacturing groups. The
lease on 48,000 square feet of the facility expires on August 1, 2000 with two
five-year renewal periods available. The lease on the remaining 23,000 square
feet of the Milpitas facility expires on March 31, 1998. The Company also
leases a manufacturing facility in Austin, Texas. This facility comprises
70,000 square feet and the lease thereon expires September 2001, with three
three-year renewal periods available. The Company's manufacturing facility in
Fremont, California encompasses 21,000 square feet and the lease thereon
expires on December 31, 2001 with one five-year renewal period available. The
Company's locations are convenient to the corporate and product design offices
and manufacturing facilities of its key customers.
37
<PAGE>
ENVIRONMENTAL REGULATIONS
The Company is subject to a variety of governmental regulations relating to
the use, storage, handling, manufacture and disposal of toxic or other
hazardous substances used to manufacture the Company's products. The Company
uses lubricants, adhesives, solvents and cleaners in connection with its
manufacturing and assembly operations. The Company believes that its storage,
use and disposal of such materials complies in all material respects with
applicable governmental regulations, and that it has obtained all necessary
environmental permits to conduct its business. Any failure by the Company to
control the use, disposal or storage of, or adequately restrict the discharge
of, hazardous or toxic substances could subject the Company to significant
liabilities, resulting in a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk Factors--Limited
Insurance Coverage; Environmental Regulation."
38
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the Company's
directors and executive officers as of June 30, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Stanley L. Leopard(1)............ 50 Chairman of the Board and Chief
Executive Officer
Jorge L. Titinger................ 36 President and Chief Operating Officer
Brent D. Elliot.................. 34 Executive Vice President, Technology
and Marketing and Director
Frank R. Balma................... 48 Vice Chairman of the Board
Terence J. Griffin............... 35 Senior Vice President, Chief Financial
Officer and Secretary
Michael C. Child(2).............. 42 Director
Don M. Lyle(2)(3)................ 58 Director
Russell G. Redenbaugh(1)......... 52 Director
W. Lee Shevel(1)(3).............. 65 Director
</TABLE>
- --------
(1) Member of the Executive Committee
(2) Member of the Compensation Committee
(3) Member of the Audit Committee
Stanley L. Leopard became Chairman of the Board of the Company in January
1993 after serving in an advisory capacity for two years. He was named Chief
Executive Officer in August 1994. Mr. Leopard also served as the Company's
Chief Financial Officer from January 1993 to July 1994. Prior to joining the
Company, Mr. Leopard was a principal of Leopard & Associates, a management
consulting firm that he formed in 1983.
Jorge L. Titinger has served as the Company's President and Chief Operating
Officer since November 1996. From November 1995 to November 1996, Mr. Titinger
served as the Company's Vice President of Operations. From February 1993 to
October 1995, Mr. Titinger was Vice President of Operations and Customer
Service as well as one of the founders of NeTpower, Inc., a network computing
company. Prior to founding NeTpower, Inc. Mr. Titinger worked in various
management capacities for MIPS/Silicon Graphics from October 1989 to January
1993.
Brent D. Elliot, a founder of the Company, has served as Executive Vice
President, Technology and Marketing since April 1997, after having served as
Senior Vice President, Technology and Marketing since November 1996. Prior to
that, Mr. Elliot served in the Company's Office of the President from August
1995 to November 1996. Mr. Elliot previously held a number of other positions
at the Company, including Chief Technical Officer from April 1994 to November
1996, Chief Financial Officer from September 1989 to January 1993, Secretary
from September 1989 to July 1994 and Executive Vice President from September
1989 to April 1994. In addition, Mr. Elliot has been a director of the Company
since its inception in 1989. From 1981 through 1989, Mr. Elliot served as
Director of Operations of Innovative Engineering, Inc., a manufacturer of
hazardous gas abatement equipment for the semiconductor industry.
Frank R. Balma, a founder of the Company, has served as Vice Chairman of the
Board since November 1996. From August 1995 until November 1996, he served in
the Company's Office of the President and was its Chief Operating Officer from
August 1994 to November 1996. From September 1989 to August 1995, Mr. Balma
served as the Company's President. He also served as the Company's Chief
Executive Officer from September 1989 to August 1994. In addition, Mr. Balma
has been a director of the Company since its inception in 1989. From 1986 to
1989, Mr. Balma was Director of Sales at
39
<PAGE>
Innovative Engineering, Inc., a manufacturer of hazardous gas abatement
equipment for the semiconductor industry.
Terence J. Griffin joined the Company in August 1993 as Corporate Controller
and has been the Company's Chief Financial Officer, Vice President and
Secretary since July 1994. In April 1997, Mr. Griffin was appointed as a
Senior Vice President of the Company. From 1986 to 1993, Mr. Griffin held
various financial positions at Diasonics, Inc., a manufacturer of medical
imaging equipment, ultimately serving as Finance Manager for Diasonics'
Ultrasound Division.
Michael C. Child has been a director of the Company since January 1996. Mr.
Child is currently a Managing Director of TA Associates, a private equity
firm. Mr. Child joined TA Associates in 1982 and served as a General Partner
from 1986 to 1994. Mr. Child also serves as a director of Sonic Solutions, a
digital audio workstation company.
Don M. Lyle has been a director of the Company since April 1995 after
serving in an advisory capacity from November 1993 to March 1995. He has been
a principal of Technology Management Co., a management consulting firm, since
1983. He also served as Vice President of Tandem Computers, a computer
manufacturing company, from June 1988 to December 1994. From 1968 to 1983, Mr.
Lyle served in various capacities at Burroughs Corporation, a mainframe and
computer manufacturing company, including Vice President, Systems Management
and Vice President, Advanced Technology. He is currently a director of DH
Technology, Inc., a communications networking firm, a director of Emulex
Network Systems, a specialty printer company and a director of NRI
Corporation, a company.
Russell G. Redenbaugh has been a director of the Company since April 1995
after serving in an advisory capacity from May 1994 to March 1995. He has been
a partner and director of Cooke & Bieler, Inc., a Philadelphia-based
investment management firm, since 1969. Since 1985 Mr. Redenbaugh has been
president of Kairos, Inc., a management consulting firm. In addition, he is a
member of the U.S. Civil Rights Commission.
W. Lee Shevel has been a director of the Company since April 1995 after
serving in an advisory capacity from November 1993 to March 1995. He has been
an owner and Managing Director of EIM, a management consulting firm, since
June 1994. Dr. Shevel served in several positions with Unisys Corporation, an
information systems and services company, from June 1992 to June 1994. In
addition, Dr. Shevel was President of Paramax Canada, a Unisys company, from
1988 to 1992 and Vice President, Systems and Technology from 1984 to 1988.
Directors are elected by the shareholders of the Company for one-year terms
and hold office until the next annual meeting of shareholders or until their
successors are elected and qualified.
COMMITTEES OF THE BOARD OF DIRECTORS
The Executive Committee consists of Stanley L. Leopard, Russel G. Redenbaugh
and W. Lee Shevel. The Executive Committee has all the authority and powers of
the Board of Directors to act on behalf of the Company subject to certain
limitations set forth in the Company's Bylaws. These limitations include a
prohibition on taking any action requiring shareholder approval; the filling
of vacancies or appointments to the Board of Directors or any other committee
of the Company and the fixing of compensation with respect to such positions;
and distributions to shareholders except at a rate and range and during a
period previously determined by the Board of Directors. Following the taking
of any action by the Executive Committee, the Committee is required to prepare
a report to the Board of Directors of the Company.
The Compensation Committee consists of Michael C. Child and Don M. Lyle. The
Compensation Committee reviews and evaluates the compensation and benefits of
employees of the Company, reviews
40
<PAGE>
general policy matters relating to the compensation and benefits of employees
of the Company and makes recommendations concerning these matters to the Board
of Directors. The Compensation Committee also administers the Company's 1993
Plan and will administer the 1997 Plan and the 1997 Purchase Plan when such
plans become effective.
The Audit Committee consists of Don M. Lyle and W. Lee Shevel. The Audit
Committee reviews the scope and timing of the Company's independent auditors'
audit services and other services they are asked to perform, including the
auditors' report on the Company's financial statements following completion of
their audit and the Company's policies and procedures with respect to internal
accounting and financial controls. In addition, the Audit Committee makes
annual recommendations to the Board of Directors for the appointment of the
Company's independent auditors for the ensuing year.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the Compensation Committee members has been at any time an officer or
employee of the Company. No interlocking relationship exists between any member
of the Company's Compensation Committee and any member of any other Company's
board of director's compensation committee.
DIRECTOR COMPENSATION
The Company does not have a formal director compensation plan, but currently
pays directors a $2,500 stipend for each fiscal quarter of service. In
addition, the Company has, from time to time, granted its directors stock
options and warrants to purchase Common Stock. See "Certain Transactions."
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
The Company does not currently have any employment contract in effect with
its Chief Executive Officer or any other Named Executive Officer (as defined
below).
41
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation. The following table sets forth all compensation for
services rendered during the year ended December 31, 1996 earned by the
Company's Chief Executive Officer and each of the four other most highly
compensated officers of the Company whose aggregate compensation exceeded
$100,000 (the "Named Executive Officers") for services rendered in all
capacities.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL
COMPENSATION AWARDS
-------------------- ------------
SECURITIES
NAME AND PRINCIPAL UNDERLYING ALL OTHER
POSITIONS SALARY ($) BONUS ($) OPTIONS(#) COMPENSATION(1)(2)
------------------ ---------- --------- ------------ ------------------
<S> <C> <C> <C> <C>
Stanley L. Leopard(3)..... $223,558 $61,555 -- $ 7,625
Chairman of the Board,
Chief Executive Officer
Frank R. Balma............ 165,773 43,542 -- 5,770
Vice Chairman of the
Board
Jorge L. Titinger......... 153,192 11,000 99,999(4) 4,925
President and Chief
Operating Officer
Brent D. Elliot .......... 203,337 17,979 -- 5,350
Executive Vice President,
Technology and Marketing
Terence J. Griffin........ 98,615 10,834 -- 4,004
Senior Vice President,
Chief Financial Officer
and Secretary
</TABLE>
- --------
(1) In accordance with the rules of the Securities and Exchange Commission,
other annual compensation in the form of perquisites and other personal
benefits has been omitted in those cases where the aggregate amount of such
perquisites and other personal benefits constituted less than the lesser of
$50,000 or 10% of the total annual salary and bonus for the Named Executive
Officer for such year.
(2) Consists of life insurance premiums paid by the Company and certain
contributions to benefit plans.
(3) Excludes value of the country club membership described in "Certain
Transactions."
(4) Includes (i) 50,000 options issued on July 23, 1996 in replacement for
50,000 options issued on November 3, 1995 and canceled on July 23, 1996;
(ii) 16,666 options issued on July 23, 1996 in replacement for 16,666
options issued on April 19, 1996, and (iii) 33,333 options issued on
October 23, 1996. Excludes 16,666 options issued on April 19, 1996 and
subsequently cancelled on July 23, 1996.
42
<PAGE>
Option Grants in Last Fiscal Year. The following table sets forth certain
information with respect to the grant of stock options during 1996 to the
Named Executive Officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF
SECURITIES GRANTED TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTIONS TERM(4)
OPTIONS IN FISCAL PRICE EXPIRATION -----------------------
NAME GRANTED(1) YEAR(2) PER SHARE(3) DATE 5% 10%
---- ---------- ---------- ------------ ---------- -- -----------
<S> <C> <C> <C> <C> <C> <C>
Stanley L. Leopard...... -- -- -- -- -- --
Frank R. Balma.......... -- -- -- -- -- --
Jorge L. Titinger....... 16,666(5) 3.3% $9.00 canceled -- --
16,666(5) 3.3 6.00 4/19/06 $ 60,877 $153,151
33,333 6.7 6.00 10/23/06 125,866 319,019
50,000(6) 10.0 6.00 11/3/05 171,977 427,048
Brent D. Elliot......... -- -- -- -- -- --
Terence J. Griffin...... -- -- -- -- -- --
</TABLE>
- --------
(1) Mr. Titinger's options were granted pursuant to the Company's 1993 Plan
and become exercisable on an annual basis at the rate of 20% per year.
Options exercisable for 16,666 shares of Common Stock have a vesting
commencement date of July 1, 1996; Options exercisable for 33,333 shares
have a vesting commencement date of January 1, 1997; and options
exercisable for 50,000 shares have a vesting commencement date of January
1, 1996.
(2) Includes options to purchase 210,000 shares of Common Stock granted to
employees in July 1996 with an exercise price of $6.00. These stock
options were issued to replace outstanding stock options which had been
previously granted at a price greater than $6.00, and canceled in July
1996.
(3) The per share exercise prices represent 100% of the fair market value of
the underlying Common Stock, as determined by the Company's Board of
Directors, as of the date of grant.
(4) Amounts reported in this column represent hypothetical values that may be
realized upon exercise of the options immediately prior to the expiration
of their term, assuming the specified compound rates of appreciation of
the Company's Common Stock over the term of these options. These numbers
are calculated based on rules promulgated by the Securities and Exchange
Commission and do not reflect the Company's estimate of future stock price
growth. Actual gains, if any, on stock option exercises and Common Stock
holdings are dependent on the timing of such exercises and the future
performance of the Company's Common Stock. There can be no assurance that
the rates of appreciation assumed in this table can be achieved or that
the amounts reflected will be received by the individuals. This table does
not take into account any appreciation in the price of the Common Stock
from the date of grant to the current date. The values shown are net of
the option exercise price, but do not include deductions for taxes or
other expenses associated with the exercise.
(5) Options exercisable for 16,666 shares of Common Stock were originally
issued on April 19, 1996 with an exercise price of $9.00 per share, were
canceled on July 23, 1996, and replaced by 16,666 options with an exercise
price of $6.00 per share. Both grants are shown in the table.
(6) Options for 50,000 shares of Common Stock were originally issued on
November 3, 1995, with an exercise price of $9.00 per share, were canceled
on July 23, 1996, and were replaced by options exercisable for 50,000
shares with an exercise price of $6.00 per share. The options exercisable
for 50 ,000 shares granted on July 23, 1996 are shown in the table.
43
<PAGE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values. None of the Named Executive Officers exercised any options to purchase
stock of the Company during the year ended December 31, 1996. The following
table sets forth information for the Named Executive Officers with respect to
options to purchase Common Stock of the Company held at December 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1996 (#) AT DECEMBER 31, 1996(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Stanley L. Leopard......... 33,333 133,333 $117,499 $469,999
Frank R. Balma............. -- -- -- --
Jorge L. Titinger.......... -- 99,999 -- --
Brent D. Elliot............ -- -- -- --
Terence J. Griffin......... 40,000 26,666 210,000 139,997
</TABLE>
- --------
(1) There was no public trading market for the Company's Common Stock as of
December 31, 1996. Accordingly, these values have been calculated on the
basis of the fair market value of $6.00 per share, as had most recently
been determined by the Board of Directors as of such date.
STOCK PLANS
Amended and Restated 1993 Stock Option Plan The Company's Amended and
Restated 1993 Stock Option Plan (the "1993 Plan") was adopted by the Board of
Directors on August 9, 1993 and approved by the shareholders on August 16,
1993. The 1993 Plan was most recently amended on September 15, 1997. The 1993
Plan provides, subject to shareholder approval, for the issuance of a maximum
of 1,933,333 shares. As of August 1, 1997, 1,359,751 shares were subject to
outstanding options, and 32,692 shares had been issued upon exercise of
options granted under the 1993 Plan. Following the Offering, no additional
options to purchase Common Stock will be issued under the 1993 Plan.
The 1993 Plan provides for the grant of incentive stock options, within the
meaning of Section 422 of the Internal Revenue Code 1986, as amended, (the
"Code") to employees (including officers and employee directors) and for the
grant of nonstatutory stock options to employees, directors and consultants.
Options granted under the 1993 Plan are not transferable by the optionee, and
each option is exercisable during the lifetime of the optionee only by such
optionee. Options granted under the 1993 Plan must generally be exercised
within three months after the end of the optionee's status as an employee,
director or consultant of the Company, or within 12 months after such
optionee's termination by death or disability, but in no event later than the
expiration of the option's ten year term.
The 1993 Plan provides that in the event of (i) a merger of the Company with
or into another corporation, (ii) a sale of substantially all of the Company's
assets or (iii) a reverse merger in which the Company is the surviving entity
but in which securities possessing more than fifty percent (50%) of the total
combined voting power of the Company's outstanding securities are transferred
to holders different from those who held such securities immediately prior to
such merger, each option shall be assumed or an equivalent option substituted
for by the successor corporation. If the successor corporation assumes or
substitutes for options and subsequently involuntarily terminates any employee
within 12 months of the merger or sale of assets, then the employee shall have
the right to exercise the option as to all of the optioned stock, including
shares as to which it would not otherwise be exercisable. If the outstanding
options are not assumed or substituted for by the successor corporation, the
Board of Directors shall provide for the optionee to have the right to
exercise the option as to all of the optioned stock, including shares as to
which it would not otherwise be exercisable.
44
<PAGE>
1997 Stock Plan The Company's 1997 Stock Plan (the "1997 Plan") was adopted
by the Board of Directors on September 15, 1997 and is subject to shareholder
approval. The 1997 Plan provides for the grant of incentive stock options,
within the meaning of Section 422 of the Code, to employees (including
officers and employee directors) and for the grant of nonstatutory stock
options and stock purchase rights ("SPRs") to employees, directors and
consultants. The number of shares of Common Stock currently reserved for
issuance pursuant to the 1997 Plan, is equal to (a) 133,333 shares plus (b)
the number of shares reserved under the 1993 Plan but not issued or underlying
granted options and any shares returned to the 1993 Plan as a result of
termination of options under the 1993 Plan, plus (c) annual share increases
equal to the lesser of (i) 333,333 shares, (ii) 2.5% of the Company's
outstanding shares of capital stock on January 1 of each year or (iii) any
amount determined by the Board of Directors. Unless terminated sooner, the
1997 Plan will terminate automatically on September 15, 2007.
The 1997 Plan may be administered by the Board of Directors or a committee
of the Board (as applicable, the "Administrator"). The Administrator has the
power to determine the terms of the options or SPRs granted, including the
exercise price of the option or SPR, the number of shares subject to each
option or SPR, the exercisability thereof, and the form of consideration
payable upon such exercise. In addition, the Administrator has the authority
to amend, suspend or terminate the 1997 Plan, provided that no such action may
affect any share of Common Stock previously issued and sold or any option
previously granted under the 1997 Plan.
Options and SPRs granted under the 1997 Plan are generally not transferable
by the optionee, and each option and SPR is exercisable during the lifetime of
the optionee only by such optionee. Options granted under the 1997 Plan must
generally be exercised within three months after the end of the optionee's
status as an employee, director or consultant of the Company, or within 12
months after such optionee's termination by death or disability, but in no
event later than the expiration of the option's ten year term.
In the case of SPRs, unless the Administrator determines otherwise, the
restricted stock purchase agreements relating to SPRs shall grant the Company
a repurchase option exercisable upon the voluntary or involuntary termination
of the purchaser's employment with the Company for any reason (including death
or disability). The purchase price for shares repurchased pursuant to such
restricted stock purchase agreements shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
The exercise price of all incentive stock options granted under the 1997
Plan must be at least equal to the fair market value of the Common Stock on
the date of grant. The exercise price of nonstatutory stock options and SPRs
granted under the 1997 Plan is determined by the Administrator, but with
respect to nonstatutory stock options intended to qualify as "performance-
based compensation" within the meaning of Section 162(m) of the Code, the
exercise price must be at least equal to the fair market value of the Common
Stock on the date of grant. With respect to any participant who owns stock
possessing more than 10% of the voting power of all classes of the Company's
outstanding capital stock, the exercise price of any incentive stock option
granted must equal at least 110% of the fair market value on the grant date
and the term of such incentive stock option must not exceed five years. The
term of all other options granted under the 1997 Plan may not exceed ten
years.
The 1997 Plan provides that each non-employee director shall automatically
be granted an option to purchase shares of Common Stock on the date that
such person first becomes a non-employee director, unless immediately prior to
becoming a non-employee director, such person was an employee director of the
Company. In addition, each non-employee director shall automatically be
granted an option to purchase shares on the date of the Company's annual
meeting of shareholders, if on such date he or she shall have served on the
Board for at least the preceding six months. Each option granted to a non-
employee director shall have a term of 10 years, shall vest as to
45
<PAGE>
25% of optioned stock one year from the date of grant, and 1/48 of the optioned
stock shall vest each month thereafter, provided that the person continues to
serve as a Director on such dates, and the exercise price of each such option
shall be 100% of the fair market value per share of the Common Stock on the
date of grant.
The 1997 Plan provides that in the event of a merger of the Company with or
into another corporation or a sale of substantially all of the Company's
assets, each option and SPR shall be assumed or an equivalent option or SPR
substituted for by the successor corporation. If the successor corporation
assumes or substitutes options and SPRs and subsequently involuntarily
terminates any employee other than for cause within 12 months of the merger or
sale of assets, then the employee shall have the right to exercise the option
or SPR as to all of the optioned stock, including shares as to which it would
not otherwise be exercisable. If the outstanding options and SPRs are not
assumed or substituted for by the successor corporation, the Administrator
shall provide for the optionee to have the right to exercise the option or SPR
as to all of the optioned stock, including shares as to which it would not
otherwise be exercisable. If the Administrator makes an option or SPR
exercisable in full in the event of a merger or sale of assets, the
Administrator shall notify the optionee that the option or SPR shall be fully
exercisable for a period of 15 days from the date of such notice, and the
option or SPR will terminate upon the expiration of such period.
1997 Employee Stock Purchase Plan. The Company's 1997 Employee Stock Purchase
Plan (the "1997 Purchase Plan") was adopted by the Board of Directors on
September 15, 1997 and is subject to shareholder approval. A total of 166,666
shares of Common Stock has been reserved for issuance under the 1997 Purchase
Plan, plus annual increases equal to the lesser of (i) 133,333 shares, (ii) 1%
of the outstanding shares on January 1 of each year or (iii) any amount
determined by the Board of Directors.
The 1997 Purchase Plan, which is intended to qualify under Section 423 of the
Code, contains consecutive, overlapping, 12 month offering periods. Each
offering period incudes two six-month purchase periods. The offering periods
generally start on the first trading day on or after May 1 and November 1 of
each year, except for the first such offering period which commences on the
first trading day on or after the effective date of the Offering and ends on
the last trading day on or before October 31, 1998.
Employees are eligible to participate if they are employed by the Company or
any participating subsidiary for at least 20 hours per week and more than five
months in any calendar year. However, any employee who (i) immediately after
grant owns stock possessing 5% or more of the total combined voting power or
value of all capital stock of the Company or (ii) whose rights to purchase
stock under all employee stock purchase plans of the Company accrues at a rate
which exceeds $25,000 worth of stock for each calendar year may not be granted
an option to purchase stock under the 1997 Purchase Plan. The 1997 Purchase
Plan permits participants to purchase Common Stock through payroll deductions
of up to 15% of the participant's "compensation." Compensation is defined as
the participant's base straight time gross earnings only, excluding payments
for overtime, commissions, shift premiums, incentive compensation, bonuses and
other compensation. The maximum number of shares a participant may purchase
during a single purchase period is 3,333 shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of Common Stock at the end of each purchase period. The price of stock
purchased under the 1997 Purchase Plan is 85% of the lower of the fair market
value of the Common Stock at the beginning of the offering period or at the end
of the purchase period. In the event the fair market value at the end of a
purchase period is less than the fair market value at the beginning of the
offering period, the participants will be withdrawn from the current offering
period following exercise and automatically re-enrolled in a new offering
period. The new offering period will use the lower fair market value as of the
first date of the
46
<PAGE>
new offering period to determine the purchase price for future purchase
periods. Participants may end their participation at any time during an
offering period, and they will be reimbursed their payroll deductions to date.
Participation ends automatically upon termination of employment with the
Company.
Rights granted under the 1997 Purchase Plan are not transferable by a
participant other than by will, the laws of descent and distribution, or as
otherwise provided under the 1997 Purchase Plan. The 1997 Purchase Plan
provides that, in the event of a merger of the Company with or into another
corporation or a sale of substantially all of the Company's assets, each
outstanding option may be assumed or substituted for by the successor
corporation. If the successor corporation refuses to assume or substitute for
the outstanding options, the offering period then in progress will be shortened
and a new exercise date will be set. The 1997 Purchase Plan will terminate on
September 15, 2007. The Board of Directors has the authority to amend or
terminate the 1997 Purchase Plan, except that no such action may adversely
affect any outstanding rights to purchase stock under the 1997 Purchase Plan.
PROFIT SHARING/401(K) PLAN
The Company maintains the Insync Systems, Inc. Profit Sharing/401(k) Plan
(the "401(k) Plan"). All eligible employees of the Company who have attained
age 18 may participate in the 401(k) Plan after completing six months of
service by enrolling on the first day of any calendar quarter. The 401(k) Plan
provides that each participant may contribute from 1% to 15% of his or her pre-
tax compensation (up to a statutorily prescribed annual limit of $9,500 in
1997) to the 401(k) Plan. The Company currently matches salary deferral
contributions at a rate of 50% up to a limit of 3% of the employee's pre-tax
compensation. At the discretion of the Board of Directors, the Company may make
a profit sharing contribution to the 401(k) Plan. To date, the Company has not
made any profit sharing contribution. The 401(k) Plan includes a stock bonus
provision for non-highly compensated participants. The Board of Directors
elected to contribute, as of January 1, 1996, an aggregate amount of Common
Stock equal to 100 shares per eligible participant up to a maximum of 13,500
shares of Common Stock. Any shares directed to be contributed pursuant to the
stock bonus provision by the Board of Directors are allocated equally among the
eligible participants. Generally, participants must be employed on the last day
of the plan year and have 1,000 hours of service in that plan year to be
eligible to receive matching, profit sharing or stock bonus contributions.
Matching contributions are always fully vested; stock bonus and profit sharing
contributions are subject to a vesting schedule. Participants are permitted to
borrow from their account and may also request hardship withdrawals.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company has adopted provisions in its Amended and Restated Articles of
Incorporation that limits the liability of its directors for monetary damages
as directors to the fullest extent permitted by the California Corporations
Code. Such limitation of liability does not affect the availability of
equitable remedies such as injunctive relief or rescission. The Company's
Bylaws provide that the Company will indemnify its directors and officers and
may indemnify its employees and other agents to the fullest extent permitted by
California law. In addition, as permitted by its Bylaws, the Company has also
entered into indemnification agreements with its directors and executive
officers in addition to the indemnification provided for in the Company's
Bylaws. The indemnification agreements may require the Company, among other
things, to indemnify its directors and officers against certain liabilities
that may arise by reason of their status or service as directors or officers
(other than liabilities arising from willful misconduct of a culpable nature),
to advance their expenses incurred as a result of any proceeding against them
as to which they could be indemnified and to obtain directors' and officers'
insurance if available on reasonable terms. The Company believes that these
provisions and agreements are necessary to attract and retain qualified
directors and executive officers.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding which may result in a claim for such indemnification.
47
<PAGE>
CERTAIN TRANSACTIONS
On January 30, 1996 and March 6, 1996, the Company sold an aggregate of
3,000,000 shares of its Redeemable Preferred Stock for an aggregate
consideration of $24 million pursuant to a Series A Preferred Stock and Warrant
Purchase Agreement (the "Series A Purchase Agreement"). On January 30, 1996, in
connection with the sale of its Redeemable Preferred Stock, the Company also
sold, for an aggregate consideration of $1,000, warrants to acquire up to
66,666 shares of its Common Stock at an exercise price of $12.00 per share.
Entities affiliated with TA Associates, Inc. purchased an aggregate of
2,500,000 shares of Redeemable Preferred Stock and all of such warrants.
Michael C. Child, a director of the Company, is a Managing Director of TA
Associates, Inc. The Company's Articles of Incorporation in effect prior to the
completion of the Offering provide for the conversion of each share of
Redeemable Preferred Stock into between one share and approximately 1.176471
shares of the Company's Common Stock, on a pre-split basis, upon the first
public offering of the Company's Common Stock which meets certain criteria,
with the exact conversion rate dependent on the public offering price per share
applicable to such offering. In connection with the Offering, such conversion
rate would be approximately 1.176471, resulting in the 2,500,000 shares of
Redeemable Preferred Stock held by entities affiliated with TA Associates, Inc.
being converted into 2,941,176 shares of Common Stock of the Company on a pre-
split basis, or 1,960,784 shares of Common Stock giving effect to the 2-for-3
reverse stock split to be effected in connection with the Offering. The
purchasers of Redeemable Preferred Stock, including entities affiliated with TA
Associates, Inc., were also granted certain rights to cause the Company to
register the Common Stock issuable upon the conversion of the Redeemable
Preferred Stock under the Securities Act.
Between January 31, 1996 and March 6, 1996, in connection with the sale of
its Redeemable Preferred Stock, the Company repurchased an aggregate of
1,607,213 shares of its Common Stock from existing shareholders at a price of
$12.00 per share. The opportunity to participate in such repurchase program was
extended to all holders of Common Stock on a pro rata basis, with unexercised
rights being reallocated to shareholders who desired to sell more than their
pro rata allocation. The following table summarizes the sales of Common Stock
made by the officers and directors of the Company in such repurchase program:
<TABLE>
<CAPTION>
SHARES OF AGGREGATE
COMMON STOCK CONSIDERATION
SOLD TO THE PAID BY
COMPANY THE COMPANY
------------ -------------
<S> <C> <C>
Stanley L. Leopard................................... 146,918 $ 1,763,016
Frank R. Balma....................................... 375,248 4,502,984
Brent D. Elliot...................................... 366,666 4,400,000
Don M. Lyle.......................................... 13,333 160,000
Lee W. Shevel........................................ 13,333 160,000
------- -----------
Total.............................................. 915,498 $10,986,000
======= ===========
</TABLE>
On May 1, 1994, for consulting services rendered to the Company in his
individual capacity, Russell Redenbaugh, a director of the Company, was issued
a fully-vested warrant expiring in 2004 to purchase 33,333 shares of the
Company's Common Stock at an exercise price of $0.75 per share. On March 8,
1995, Mr. Redenbaugh was granted an option under the 1993 Plan to purchase
50,000 shares of Common Stock at an exercise price of $4.50 per share which
will become exercisable in equal quarterly installments over five years of
continued service commencing January 1, 1995. On April 5, 1995, for his
services as a director, Mr. Redenbaugh was granted an option under the 1993
Plan to purchase 16,666 shares of Common Stock at an exercise price of $4.50
per share, which will become exercisable in five equal annual installments upon
completion of each year of service subsequent to April 5, 1995. On August 23,
1995, Mr. Redenbaugh was issued a fully-vested warrant expiring in 2005 to
purchase 23,333 shares of Common Stock at an exercise price of $5.25 per share,
for services in his capacity as a consultant to the Company. On January 23,
1996, Mr. Redenbaugh purchased 20,000 shares of the Company's Common Stock from
each of Stanley L. Leopard, Frank R. Balma and Brent D. Elliot, at a per share
price of $5.25 pursuant to options granted to Mr. Redenbaugh by each of the
named individuals.
48
<PAGE>
Mr. Redenbaugh, a director of the Company, is the Chief Executive Officer and
majority shareholder of Kairos, Inc. ("Kairos"), a management consulting firm.
Beginning in 1994, the Company engaged the services of Kairos to advise the
Company on certain management and business matters for which the Company paid
Kairos $110,000. During 1997, 1996 and 1995, the Company paid Kairos $100,000,
$112,000 and $186,000 respectively for consulting services. In addition, during
1995, the Company issued to certain Kairos employees and consultants options
and warrants to purchase an aggregate of 99,997 shares of Common Stock at a
weighted average exercise price of $2.75, of which 43,333 fully-vested warrants
expiring in 2005 with an exercise price of $1.50 per share were granted to Mr.
Redenbaugh and 5,000 fully-vested warrants were granted to Frederick T. Hecht,
a consultant of the Company as described below.
The Company also paid approximately $157,000, $241,000, $144,000 and $64,000
in 1997, 1996, 1995 and 1994, respectively, to Hecht and Associates, Inc. for
sales and management training classes for certain of the Company's employees.
Frederick T. Hecht owns a majority interest in Hecht and Associates, Inc. and
has also been paid $6,000 and $3,000 in 1995 and 1994, respectively, for
services rendered in his individual capacity as an advisor to the Company's
Board of Directors. Stanley L. Leopard, the Company's Chairman and Chief
Executive Officer, formerly held a minority interest in Hecht and Associates,
Inc.
In return for his consulting services in 1994, on May 1, 1994 Mr. Hecht was
issued a fully-vested warrant from the Company expiring in 2004 for 33,333
shares of Common Stock at an exercise price per share of $0.75. On May 10,
1995, Mr. Hecht received another fully-vested warrant expiring in 2005 for
5,000 shares of Common Stock at an exercise price per share of $1.50 for his
consulting services to the Company rendered on behalf of Kairos. Mr. Hecht also
received a gift of 6,666 shares of Common Stock from Frank R. Balma in 1995. On
March 8, 1995, the Company granted Mr. Hecht an option under the 1993 Plan to
purchase 50,000 shares of Common Stock at an exercise price per share of $4.50
in return for consulting services, which will become exercisable in equal
quarterly installments over five years of continued service commencing January
1, 1995.
On April 5, 1995, for his services as a director of the Company, Don M. Lyle
was granted an option under the 1993 Plan to purchase 16,666 shares of Common
Stock at an exercise price per share of $4.50 which will become exercisable in
five equal annual installments subject to his continued service. On August 23,
1995, Mr. Lyle was granted an additional option under the 1993 Plan to purchase
16,666 shares of Common Stock at an exercise price per share of $5.25, which
will become exercisable over a five-year period subject to his continued
service.
On April 5, 1995, for his services as a director of the Company, W. Lee
Shevel was granted an option under the 1993 Plan to purchase 16,666 shares of
Common Stock at an exercise price per share of $4.50, which will become
exercisable in five equal annual installments upon his completion of each year
of service subsequent to April 5, 1995. On March 8, 1995, Dr. Shevel was
granted an additional option under the 1993 Plan to purchase 50,000 shares of
Common Stock at an exercise price per share of $4.50 exercisable in equal
quarterly installments over five years of continued service.
On May 27, 1996, the Company and Stanley L. Leopard entered into a co-
investment agreement with respect to the purchase of one full-use country club
membership. Pursuant to such agreement, the Company and Mr. Leopard each paid
50 percent of the $100,000 membership purchase price and will each acquire a 50
percent equity interest in the membership. Mr. Leopard will have the use of the
membership and will be responsible for the payment of all periodic fees, dues,
and/or costs relating to the membership. In the event that Mr. Leopard's
employment with the Company terminates for any reason, Mr. Leopard will have
the option to purchase, within 90 days of such termination, the Company's
interest in the membership at the greater of (i) the Company's cost and (ii)
the then-current fair market value.
49
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information as of August 1, 1997 as
adjusted to reflect the sale of shares of Common Stock by the Company
and based on information obtained from the persons named below with respect to
the beneficial ownership of shares of Common Stock by (i) each person (or group
of affiliated persons) known by the Company to be the owner of more than 5% of
the outstanding shares of Common Stock, (ii) each of the Company's directors;
(iii) each of the Named Executive Officers; and (iv) all officers and directors
as a group. Unless otherwise indicated, the address of each shareholder in the
table below is c/o Insync Systems, Inc., 1463 Centre Pointe Drive, Milpitas, CA
95035.
<TABLE>
<CAPTION>
SHARES SHARES SHARES
BENEFICIALLY OWNED TO BE BENEFICIALLY OWNED
5% SHAREHOLDERS, BEFORE OFFERING(2)(3) SOLD IN AFTER OFFERING(2)(3)
DIRECTORS AND EXECUTIVE ------------------------- THE -----------------------
OFFICERS(1) NUMBER PERCENT OFFERING NUMBER PERCENT
- ----------------------- ------------- ----------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Entities affiliated
with TA Associates,
Inc.(4)............... 2,027,450 27.1%
High Street Tower,
Suite 2500
125 High Street
Boston, Massachusettes
02110-2720
Michael C. Child(4).... 2,027,450 27.1
Frank R. Balma......... 991,579 13.9
Brent D. Elliot(5)..... 593,754 8.3
Stanley L. Leopard(6).. 450,599 6.3
Elizabeth Reilly(7).... 438,058 6.2
7572 Lockford Ct.
Cupertino, CA 95014
Entities affiliated
with Summit
Partners(8)........... 392,156 5.5
499 Hamilton Avenue,
Suite 200
Palo Alto, CA 94301
Russell G.
Redenbaugh(9)......... 220,500 3.0
W. Lee Shevel(10)...... 135,166 1.9
Don M. Lyle(11)........ 89,999 1.3
Terence J. Griffin(12). 53,333 *
Jorge L. Titinger(13).. 13,333 *
All Officers and
Directors as a Group
(9 persons)(14)....... 4,575,712 58.4%
Other Selling
Shareholders
</TABLE>
- --------
* Less than one percent.
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, each shareholder named in the table
has sole voting and investment power with respect to the shares set forth
opposite such shareholder's name.
(2) Applicable percentage of ownership is based on 7,116,278 shares of Common
Stock and as-if-converted Redeemable Preferred Stock outstanding on August
1, 1997 and shares of Common Stock outstanding after the
completion of the Offering assuming no exercise of the Underwriters' over-
allotment option. If the Underwriters' over-allotment option is exercised
in full the Company and certain shareholders will sell an aggregate of
additional shares of Common Stock.
50
<PAGE>
(3) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options or warrants held by that
person that are currently exercisable or exercisable within 60 days of
August 1, 1997 are deemed outstanding. Such shares, however, are not
deemed outstanding for the purposes of computing the percentage ownership
of any other person. Except as indicated in the footnotes to the above
table and pursuant to applicable community property laws, each shareholder
named in the table has sole voting and investment power with respect to
the shares set forth opposite such shareholder's name.
(4) Includes 1,960,784 shares of Common Stock issuable upon conversion of
Redeemable Preferred Stock in connection with the Offering. Also includes
66,666 shares of Common Stock issuable pursuant to warrants held and
exercisable within 60 days after August 1, 1997. The shares and warrants
are held of record by Advent VII L.P., Advent New York L.P., Advent
Atlantic and Pacific II L.P., Advent Industrial II, L.P., Chestnut Capital
International III Limited Partnership and TA Venture Investors Limited.
Such entities are part of an affiliated group of investment partnerships
associated with TA Associates, Inc. Michael C. Child, a director of the
Company, is a Managing Director of TA Associates, Inc., which in turn,
directly or indirectly possesses investment and voting power with respect
to the shares and warrants held of record by the aforementioned entities.
Therefore, Mr. Child directly or indirectly holds shared investment and
voting power with respect to such shares and warrants, but disclaims
beneficial ownership of such shares and warrants, except to the extent of
his pecuniary interest therein. See "Certain Transactions."
(5) Excludes 438,058 shares held in the name of Elizabeth Reilly, the former
spouse of Mr. Elliot, and as to which Mr. Elliot holds neither voting nor
dispositive rights.
(6) Includes 367,266 shares of Common Stock outstanding as of August 1, 1997
and 66,666 shares of Common Stock issuable pursuant to options held by Mr.
Leopard which may be exercised within 60 days of August 1, 1997. Also
includes 16,666 shares of Common Stock in the name of the Balma Education
Trust of which Mr. Leopard is a trustee. Excludes 105,000 shares of Common
Stock held in the name of the Stanley L. Leopard 1994 Irrevocable Trust
for the benefit of Mr. Leopard's children of which Mr. Leopard is not a
trustee. Excludes 233,333 shares of Common Stock in the Melody Rae Leopard
Trust of which Mr. Leopard is neither a beneficiary nor trustee.
(7) Excludes 593,754 shares held in the name of Brent D. Elliot, the former
spouse of Elizabeth Reilly, as to which Ms. Reilly holds neither voting
nor dispositive rights.
(8) Includes 392,156 shares of Common Stock issuable upon conversion of
Redeemable Preferred Stock in connection with the Offering. The shares are
held of record by Summit Ventures IV, L.P. and Summit Investors III, L.P.
See "Certain Transactions."
(9) Includes 68,000 shares of Common Stock outstanding as of August 1, 1997
and 152,500 shares of Common Stock issuable pursuant to options and
warrants held by Mr. Redenbaugh which may be exercised within 60 days
after August 1, 1997.
(10) Includes 82,666 shares of Common Stock outstanding as of August 1, 1997
and 52,500 shares issuable pursuant to options held by Mr. Shevel which
may be exercised within 60 days after August 1, 1997.
(11) Includes 76,666 shares of Common Stock outstanding as of August 1, 1997
and 13,333 shares of Common Stock issuable pursuant to options held by Mr.
Lyle which may be exercised within 60 days after August 1, 1997.
(12) Includes 53,333 shares of Common Stock issuable pursuant to options held
by Mr. Griffin which may be exercised within 60 days after August 1, 1997.
(13) Includes 13,333 shares of Common Stock issuable pursuant to options held
by Mr. Titinger which may be exercised within 60 days after August 1,
1997.
(14) Includes 418,331 shares of Common Stock issuable pursuant to options and
warrants which may be exercised within 60 days after August 1, 1997.
51
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of the Offering the Company's authorized capital stock will
consist of 50,000,000 shares of Common Stock, $0.01 par value per share, and
4,000,000 shares of Preferred Stock, $0.01 par value per share.
The following summary of certain provisions of the Common Stock and Preferred
Stock does not purport to be complete and is subject to, and qualified in its
entirety by, the provisions of the Company's Amended and Restated Articles of
Incorporation, which is included as an exhibit to the Registration Statement of
which this Prospectus is a part, and by the provisions of applicable law.
COMMON STOCK
As of August 1, 1997, there were 5,116,279 shares of Common Stock outstanding
and held of record by 263 shareholders. Immediately after completion of the
Offering and assuming no exercise of the Underwriters' over-allotment option,
there will be an aggregate of shares of Common Stock outstanding as
well as options to purchase an aggregate of approximately shares of
Common Stock. Matters submitted for shareholder approval generally require a
majority vote. Holders of Common Stock are entitled to one vote per share on
all matters to be voted on by shareholders.
Subject to any preferences that may be applicable to outstanding shares of
Preferred Stock, if any, holders of Common Stock are entitled to receive
ratably such dividends as may be declared from time to time by the Board of
Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, holders of Common Stock
will be entitled to share ratably in the Company's assets remaining after the
payment of liabilities and the satisfaction of any liquidation preferences
granted the holders of any outstanding shares of Preferred Stock. Holders of
Common Stock have no preemptive or other subscription rights. The shares of
Common Stock are not convertible into any other security. The outstanding
shares of Common Stock are, and the shares being offered hereby will be, upon
issuance and sale, fully paid and nonassessable. See "Dividend Policy."
PREFERRED STOCK
Upon completion of the Offering, the Board of Directors will be authorized to
issue 4,000,000 shares of undesignated Preferred Stock in one or more series
and to fix the rights, preferences, privileges and restrictions granted to or
imposed upon any wholly unissued shares of undesignated Preferred Stock and to
fix the number of shares constituting any series in the designations of such
series, without further vote or action by the shareholders. The Board of
Directors, without shareholder approval, can issue Preferred Stock with voting
and conversion rights which could adversely affect the voting power of the
holders of Common Stock. The issuance of Preferred Stock may have the effect of
delaying, deferring or preventing a change in control of the Company. The
Company has no present plan to issue Preferred Stock following the Offering.
WARRANTS
As of August 1, 1997 the Company had outstanding warrants to purchase 317,996
shares of Common Stock at a weighted average exercise price of $3.81 per share.
Following the Offering, the holders of warrants to purchase up to 40,000 shares
of the Company's Common Stock will have the right to cause the Company to
purchase all or part of such warrants or the Common Stock issued upon exercise
thereof at a price of $9.00 per share.
REGISTRATION RIGHTS OF CERTAIN HOLDERS
Upon completion of the Offering, the holders of approximately shares of
Common Stock will be entitled upon expiration of lock-up agreements with the
Underwriters to certain rights with
52
<PAGE>
respect to the registration of such shares under the Securities Act. Under the
terms of the agreements between the Company and the holders of such registrable
securities, if the Company proposes to register any of its securities under the
Securities Act, either for its own account or for the account of other
securities holders exercising registration rights, such holders are entitled to
notice of such registration and are entitled to include shares of such Common
Stock therein. Holders of registration rights may also require the Company to
file a registration statement under the Securities Act at the Company's expense
with respect to their shares of Common Stock, and the Company is required to
use its best efforts to effect such registration. Further, holders may require
the Company to file registration statements on Form S-3 at the Company's
expense when such form becomes available for use by the Company. All such
registration rights are subject to certain conditions and limitations,
including the right of the underwriters of an offering to limit the number of
shares to be included in such registration. In the event of such limitation,
the number of the shares to be included in such an offering will be allocated
among the persons exercising registration rights pursuant to a formula which
favors inclusion of shares with a higher original issuance price. As a result,
the holders of the Common Stock issuable upon the conversion of the Redeemable
Preferred Stock, including entities affiliated with Michael C. Child, a
director of the Company, will generally be allowed to include a greater
percentage of their shares in such offering in the event of such limitations.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF AMENDED AND RESTATED ARTICLES OF
INCORPORATION, AMENDED AND RESTATED BYLAWS
The Company's Amended and Restated Articles of Incorporation and Amended and
Restated Bylaws, among other things, (i) limit the rights of shareholders to
take action by written consent without a meeting and (ii) provide that the
Board of Directors, without action by the shareholders, may issue and fix the
rights and preferences of shares of Preferred Stock. These provisions may have
the effect of delaying, deferring or preventing a change of control of the
Company without further action by the shareholders, may discourage bids for the
Common Stock at a premium over the market price of the Common Stock, may
adversely affect the market price of, and the voting and other rights of, the
holders of the Common Stock and could have the effect of discouraging certain
attempts to acquire the Company or remove incumbent management, including
incumbent members of the Company's Board of Directors, even if some or a
majority of the Company's shareholders deemed such an attempt to be in their
best interests. See "Risk Factors--Control by Directors and Executive Officers"
and "--Anti-Takeover Effects of Unissued Preferred Stock."
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company. Its telephone number is (718) 921-8247.
LISTING
The Company has filed an application to list its Common Stock on the Nasdaq
National Market under the trading symbol "INSY."
53
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for securities of the
Company. No prediction can be made as to the effect, if any, that market sales
of shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of
Common Stock of the Company in the public market after the lapse of the
restrictions described below could adversely affect the prevailing market price
and the ability of the Company to raise equity capital in the future at a time
and in a manner which it deems appropriate.
Upon completion of the Offering, the Company will have shares of Common
Stock outstanding, assuming no exercise of the Underwriters' over-allotment
option and no exercise of outstanding options or warrants after August 1, 1997.
Of these shares, (i) all of the shares offered hereby and an additional
shares will be freely saleable upon the effectiveness of the Offering;
(ii) shares will be eligible for sale 90 days following the
effectiveness of the Offering under Rules 144 and 701 of the Securities Act;
and (iii) an additional shares of Common Stock held by current
shareholders are subject to lock-up agreements under which the holders of such
shares have agreed not to sell or otherwise dispose of any of their shares for
a period of 180 days after the date of this Prospectus without the prior
written consent of BT Alex. Brown Incorporated. Pursuant to the Underwriting
Agreement, the Company has agreed not to consent to release any shareholders
from such lock-up agreements. After the 180-day period, approximately
shares will be eligible for sale under Rules 144 and 701. The remaining
approximately shares held by existing shareholders will become eligible
for sale from time to time in the future under Rule 144.
<TABLE>
<CAPTION>
DAYS AFTER DATE OF THIS PROSPECTUS SHARES ELIGIBLE FOR SALE COMMENT
---------------------------------- ------------------------ ------------------------
<C> <C> <S>
Upon Effectiveness........ Freely tradeable shares
sold in the Offering and
shares saleable under
Rule 144(k) that are not
subject to 180-day
lockup.
90 days................... an additional Shares saleable under
Rules 144 and 701 that
are not subject to 180-
day lockup.
180 days.................. an additional Lockup released; shares
saleable under Rules 144
and 701.
Thereafter................ an additional Restricted securities
held for one year or
less.
</TABLE>
In general, under Rule 144, a person (or persons whose shares are
aggregated), who has beneficially owned shares for at least one year is
entitled to sell within any three-month period commencing 90 days after the
date of this Prospectus a number of shares that does not exceed the greater of
(i) 1% of the then outstanding shares of Common Stock (approximately
shares immediately after the Offering) or (ii) the average weekly trading
volume during the four calendar weeks preceding such sale, subject to the
filing of a Form 144 with respect to such sale. A person (or persons whose
shares are aggregated) who is not deemed to have been an affiliate of the
Company at any time during the 90 days immediately preceding the sale who has
beneficially owned his or her shares for at least two years is entitled to sell
such shares pursuant to Rule 144(k) without regard to the limitations described
above.
The Company is unable to estimate the number of shares that will be sold
under Rule 144, as this will depend on the market price for the Common Stock of
the Company, the personal circumstances of the sellers and other factors. Prior
to the Offering, there has been no public market for the Common Stock, and
there can be no assurance that a significant public market for the Common Stock
will develop or be sustained after the Offering. Any future sale of substantial
amounts of the Common Stock in the open market may adversely affect the market
price of the Common Stock offered hereby.
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register the approximately shares of Common Stock
issuable upon the exercise of options or reserved
54
<PAGE>
for issuance under the 1997 Plan and 1993 Plan and the 166,666 shares of Common
Stock reserved for issuance under the 1997 Purchase Plan within 180 days after
the date of this Prospectus, thus permitting the resale of such shares by
nonaffiliates in the public market without restriction under the Securities
Act.
Any employee or consultant to the Company who purchased his or her shares
pursuant to a written compensatory plan or contract may be entitled to rely on
the resale provisions of Rule 701, which permits nonaffiliates to sell their
Rule 701 shares without having to comply with the public information, holding
period, volume limitation or notice provisions of Rule 144 and permits
affiliates to sell their Rule 701 shares without having to comply with the Rule
144 holding period restrictions, in each case commencing 90 days after the date
of this Prospectus. As of August 1, 1997, the holders of options exercisable
for approximately shares of Common Stock will be eligible to sell their
shares in reliance upon Rule 701 or pursuant to the Form S-8 upon the
expiration of the 180-day Lockup Period.
In addition, after the Offering, the holders of approximately shares of
Common Stock and the holders of warrants to purchase shares of Common
Stock will be entitled to certain rights with respect to registration of such
shares under the Securities Act. Registration of such shares under the
Securities Act would result in such shares becoming freely tradeable without
restriction under the Securities Act (except for shares purchased by affiliates
of the Company) immediately upon the effectiveness of such registration. See
"Description of Capital Stock--Registration Rights of Certain Holders."
55
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their representatives,
BT Alex. Brown Incorporated, PaineWebber Incorporated, and Prudential
Securities Incorporated (the "Representatives"), have severally agreed to
purchase from the Company and the Selling Shareholders the following respective
numbers of shares of Common Stock at the initial public offering price less the
underwriting discounts and commissions to be set forth on the cover page of
this Prospectus:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
BT Alex. Brown Incorporated........................................
PaineWebber Incorporated...........................................
Prudential Securities Incorporated.................................
----
Total............................................................
====
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all shares of the Common Stock offered hereby if any such shares are
purchased.
The Company and the Selling Shareholders have been advised by the
Representatives that the Underwriters propose to offer the shares of Common
Stock to the public at the initial public offering price set forth on the cover
page of this Prospectus and to certain dealers at such price less a concession
not in excess of $ per share. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per share to certain
other dealers. After the Offering, the offering price and other selling terms
may be changed by the Representatives.
The Company and certain of the Selling Shareholders of the Company have
granted to the Underwriters an option, exercisable not later than 30 days after
the date of this Prospectus, to purchase in the aggregate up to additional
shares of Common Stock at the initial public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the above table bears to and the Company and the Selling
56
<PAGE>
Shareholders will be obligated, pursuant to the option, to sell such shares to
the Underwriters. The Underwriters may exercise such option only to cover over-
allotments made in connection with the sale of Common Stock offered hereby. If
purchased, the Underwriters will offer such additional shares on the same terms
as those on which the shares are being offered.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
The Company has agreed that it will not sell or offer any shares of Common
Stock or other securities convertible into or exchangeable into Common Stock or
release any shareholder from any lock-up agreement for a period of 180 days
after the date of this Prospectus without the prior written consent of BT Alex.
Brown Incorporated. Shareholders of the Company, holding in the aggregate
shares of Common Stock including outstanding options and warrants to
purchase shares of Common Stock, have agreed not to offer, sell or
otherwise dispose of any of such shares of Common Stock for a period of 180
days after the date of this Prospectus without the prior consent of BT Alex.
Brown Incorporated. See "Shares Eligible for Future Sale".
In connection with the Offering, the Underwriters and other persons
participating in the Offering may engage in transactions that stabilize,
maintain or otherwise affect the price of Common Stock. Specifically, the
Underwriters may over-allot in connection with the Offering, creating a short
position in Common Stock for their own account. To cover over-allotments or to
stabilize the price of the Common Stock the Underwriters may bid for, and
purchase, shares of Common Stock in the open market. The Underwriters may also
impose a penalty bid whereby they may reclaim selling concessions allowed to an
underwriter or a dealer for distributing Common Stock in the Offering, if the
Underwriters repurchase previously distributed Common Stock in transactions to
cover their short position, in stabilization transactions or otherwise.
Finally, the Underwriters may bid for, and purchase, shares of Common Stock in
market making transactions. These activities may stabilize or maintain the
market price of Common Stock above market levels that may otherwise prevail.
The Underwriters are not required to engage in these activities and may end any
of these activities at any time.
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
Prior to the Offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock will be determined by negotiation between the Company and the
Representatives. Among the factors to be considered in such negotiations are
prevailing market conditions, the result of operations of the Company in recent
periods, the market capitalization and stages of development of other companies
which the Company and the Representatives believe to be comparable to the
Company, estimates of the business potential of the Company, the present state
of the Company's development and other factors deemed relevant.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company and the Selling Shareholders by Wilson
Sonsini Goodrich & Rosati, P.C., Palo Alto, California. Certain legal matters
relating to the Offering will be passed upon for the Underwriters by Gunderson
Dettmer Stough Villeneuve Franklin & Hachigian, LLP, Menlo Park, California.
57
<PAGE>
EXPERTS
The financial statements of Insync Systems, Inc. as of June 30, 1997 and
December 31, 1996 and 1995, and for the six months ended June 30, 1997 and for
each of the three years in the period ended December 31, 1996 and the financial
statements of Pullbrite, Inc., as of and for the years ended September 30, 1995
and 1994 included in this Prospectus and the related financial statement
schedule included elsewhere in the Registration Statement, have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing herein and elsewhere in the Registration Statement and are included
in reliance upon the reports of such firm given upon their authority as experts
in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form S-
1 (the "Registration Statement") under the Securities Act and the rules and
regulations promulgated thereunder with respect to the shares of Common Stock
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and the Common Stock, reference
is made to the Registration Statement and the exhibits and schedules filed as a
part thereof. Statements contained in this Prospectus as to the contents of any
contract or any other document referred to are not necessarily complete. In
each instance, reference is made to the copy of such contract or document filed
as an exhibit to the Registration Statement, and each such statement is
qualified in all respects by such reference. The Registration Statement,
including exhibits and schedules thereto, may be inspected without charge at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549 and at the regional offices of
the Commission located at Seven World Trade Center, 13th Floor, New York, New
York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such materials may be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission maintains a World Wide Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of the Commission's Web site is http://www.sec.gov.
The Company is not currently subject to the informational requirements of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"). As a
result of the offering of the Company's Common Stock, the Company will become
subject to the informational requirements of the Exchange Act. The Company
intends to furnish its shareholders with annual reports containing financial
statements audited by its independent accountants and quarterly reports for the
first three quarters of each fiscal year containing unaudited financial
statements.
58
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INSYNC SYSTEMS, INC.
Independent Auditors' Report............................................. F-2
Balance Sheets........................................................... F-3
Statements of Operations................................................. F-4
Statements of Shareholders' Equity (Deficiency).......................... F-5
Statements of Cash Flows................................................. F-6
Notes to Financial Statements............................................ F-7
PULLBRITE, INC.
Independent Auditors' Report............................................. F-19
Balance Sheets........................................................... F-20
Statements of Income..................................................... F-21
Statements of Stockholders' Equity....................................... F-22
Statements of Cash Flows................................................. F-23
Notes to Financial Statements............................................ F-24
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Insync Systems, Inc.:
We have audited the accompanying balance sheets of Insync Systems, Inc. as of
December 31, 1995 and 1996 and June 30, 1997 and the related statements of
operations, shareholders' equity (deficiency) and cash flows for each of the
three years in the period ended December 31, 1996 and for the six months ended
June 30, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Insync Systems, Inc. as of December 31,
1995 and 1996 and June 30, 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996 and for
the six months ended June 30, 1997 in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
San Jose, California
September 16, 1997
(September 29, 1997 as to Note 13)
F-2
<PAGE>
INSYNC SYSTEMS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
---------------- JUNE 30, JUNE 30,
1995 1996 1997 1997
------- -------- -------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and equivalents................... $ 182 $ 2,829 $ 929 $ 929
Short-term investments................. -- 1,500 -- --
Receivables............................ 7,387 5,765 9,347 9,347
Inventories............................ 5,664 7,832 10,147 10,147
Prepaid expenses....................... 304 564 544 544
Deferred income taxes.................. 812 2,030 2,302 2,302
------- -------- -------- --------
Total current assets................. 14,349 20,520 23,269 23,269
Property and equipment, net.............. 3,404 5,644 5,848 5,848
Intangible assets, net................... -- 3,895 3,485 3,485
Deferred income taxes.................... -- 6,037 5,596 5,596
Other assets............................. 489 764 1,043 1,043
------- -------- -------- --------
TOTAL.................................... $18,242 $ 36,860 $ 39,241 $ 39,241
======= ======== ======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Current portion of long-term
obligations........................... $ 188 $ 6,552 $ 7,055 $ 7,055
Line of credit......................... 1,150 -- 1,500 1,500
Bank overdraft......................... -- -- 555 555
Accounts payable....................... 6,314 2,557 5,297 5,297
Accrued liabilities.................... 1,591 1,048 911 911
Income taxes payable................... 697 -- -- --
------- -------- -------- --------
Total current liabilities............ 9,940 10,157 15,318 15,318
Long-term obligations.................... 413 20,636 17,108 17,108
Deferred income taxes.................... 98 -- -- --
------- -------- -------- --------
Total liabilities.................... 10,451 30,793 32,426 32,426
------- -------- -------- --------
Commitments and contingencies (note 6) -- -- -- --
Redeemable preferred stock
$0.01 par value; 3,000,000 shares
authorized; shares outstanding: 1995,
none; 1996 and 1997, 3,000,000, pro
forma, none (redemption amount of
$24,000).............................. -- 23,411 23,485 --
Common stock put warrants................ -- -- 360 360
Shareholders' equity (deficiency):
Common stock, $0.01 par value;
50,000,000 shares authorized; shares
outstanding: 1995, 6,656,052; 1996,
5,102,848; 1997, 5,116,279; pro forma,
7,469,219............................. 4,227 896 951 24,436
Deferred stock compensation............ -- (339) (316) (316)
Retained earnings (deficit)............ 3,564 (17,901) (17,665) (17,665)
------- -------- -------- --------
Total shareholders' equity
(deficiency)........................ 7,791 (17,344) (17,030) 6,455
------- -------- -------- --------
TOTAL.................................... $18,242 $ 36,860 $ 39,241 $ 39,241
======= ======== ======== ========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
INSYNC SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------ -------------------
1994 1995 1996 1996 1997
------- ------- -------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales....................... $20,617 $49,969 $ 86,099 $59,448 $34,679
Cost of sales................... 15,668 36,529 62,261 41,464 26,327
------- ------- -------- ------- -------
Gross profit................ 4,949 13,440 23,838 17,984 8,352
Operating expenses:
Selling, general and
administrative............... 2,803 5,686 11,070 6,286 4,289
Research, development and
engineering.................. 669 2,236 3,560 2,287 1,889
Write down of intangible
assets (Note 2).............. -- -- 16,610 -- --
Restructuring charge.......... -- -- 858 -- --
------- ------- -------- ------- -------
Total operating expenses.... 3,472 7,922 32,098 8,573 6,178
------- ------- -------- ------- -------
Income (loss) from operations... 1,477 5,518 (8,260) 9,411 2,174
Interest expense and other...... 230 434 2,562 1,358 1,675
------- ------- -------- ------- -------
Income (loss) before income tax. 1,247 5,084 (10,822) 8,053 499
Provision for (benefit from)
income taxes................... 513 2,088 (4,314) 3,235 189
------- ------- -------- ------- -------
Net income (loss)............... $ 734 $ 2,996 (6,508) 4,818 310
======= =======
Accretion of redeemable
preferred stock................ (147) (74) (74)
-------- ------- -------
Net income (loss) applicable to
common shareholders............ $ (6,655) $ 4,744 $ 236
======== ======= =======
Pro forma net income (loss) per
share.......................... $ (0.87) $ 0.03
======== =======
Pro forma shares used in
computation.................... 7,617 8,214
</TABLE>
See notes to financial statements.
F-4
<PAGE>
INSYNC SYSTEMS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK DEFERRED RETAINED
------------------ ------------------- STOCK EARNINGS
SHARES AMOUNT SHARES AMOUNT COMPENSATION (DEFICIT) TOTAL
---------- ------ ---------- ------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, JANUARY 1,
1994................... 2,000,000 $ 20 4,516,912 $ 297 $ -- $ (166) $ 151
Conversion of Series A
preferred stock to
common stock........... (2,000,000) (20) 666,666 20 -- -- --
Issuance of Series B
preferred stock........ 588,000 588 -- -- -- -- 588
Issuance of common
stock.................. 36,000 27 27
Conversion of notes
payable to common
stock.................. -- -- 222,222 500 -- -- 500
Common stock issued for
services............... -- -- 6,000 9 -- -- 9
Net income.............. -- -- -- -- -- 734 734
---------- ----- ---------- ------- ----- -------- --------
BALANCES, DECEMBER 31,
1994................... 588,000 588 5,447,800 853 -- 568 2,009
Conversion of Series B
preferred stock to
common stock........... (588,000) (588) 391,990 588 -- -- --
Issuance of common
stock.................. -- -- 439,953 1,939 -- -- 1,939
Exercise of stock
options................ -- -- 1,866 1 -- -- 1
Exercise of warrant..... -- -- 13,333 1 -- -- 1
Conversion of
subordinated notes
payable................ -- -- 341,110 565 -- -- 565
Common stock and
warrants issued for
services............... -- -- 20,000 280 -- -- 280
Net income.............. -- -- -- -- -- 2,996 2,996
---------- ----- ---------- ------- ----- -------- --------
BALANCES, DECEMBER 31,
1995................... -- -- 6,656,052 4,227 -- 3,564 7,791
Issuance of common
stock.................. -- -- 36,614 403 -- -- 403
Exercise of stock
options................ -- -- 17,395 21 -- -- 21
Repurchase and
retirement of common
stock.................. -- -- (1,607,213) (4,477) -- (14,810) (19,287)
Sale of warrants in
connection with sale of
redeemable preferred
stock.................. -- -- -- 223 -- -- 223
Accretion of redeemable
preferred stock........ -- -- -- -- -- (147) (147)
Deferred stock
compensation........... -- -- -- 499 (499) -- --
Amortization of deferred
stock compensation..... -- -- -- -- 160 -- 160
Net loss................ -- -- -- -- -- (6,508) (6,508)
---------- ----- ---------- ------- ----- -------- --------
BALANCES, DECEMBER 31,
1996................... -- -- 5,102,848 896 (339) (17,901) (17,344)
Exercise of stock
options................ -- -- 13,431 32 -- -- 32
Accretion of redeemable
preferred stock........ -- -- -- -- -- (74) (74)
Amortization of deferred
stock compensation..... -- -- -- -- 23 -- 23
Common stock options
issued for services.... -- -- -- 23 -- -- 23
Net income.............. -- -- -- -- -- 310 310
---------- ----- ---------- ------- ----- -------- --------
BALANCES, JUNE 30, 1997. -- $ -- 5,116,279 $ 951 $(316) $(17,665) $(17,030)
========== ===== ========== ======= ===== ======== ========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
INSYNC SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- -------- ---------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)............... $ 734 $ 2,996 $ (6,508) $ 4,818 $ 310
Adjustments to reconcile net
income (loss) to net cash
provided by (used for)
operating activities:
Issuance of common stock and
warrants for services......... 9 280 77 -- 383
Amortization of deferred stock
compensation.................. -- -- 160 14 23
Depreciation and amortization.. 387 707 3,579 1,805 1,254
Loss on disposal of equipment.. -- 106 775 45 37
Deferred income taxes.......... (213) (485) (7,353) (333) 169
Write down of intangible
assets........................ -- -- 16,610 -- --
Changes in assets and
liabilities (net of
acquisition):
Receivables.................... (2,425) (3,881) 7,473 3,318 (3,582)
Inventories.................... (3,928) (958) 1,360 (1,530) (2,315)
Prepaid expenses............... 12 (245) (260) 94 20
Accounts payable............... 3,039 2,090 (5,930) (3,490) 2,740
Accrued liabilities............ 375 1,121 (1,757) 1,360 (137)
Income taxes payable........... 240 553 (697) (523) --
------- ------- -------- -------- ------
Net cash provided by (used
for) operating activities.... (1,770) 2,284 7,529 5,578 (1,098)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Cash paid for acquisition of
Pullbrite...................... -- -- (15,000) (15,000) --
Purchases of property and
equipment...................... (734) (2,616) (3,032) (1,892) (997)
Purchase of short-term
investments.................... -- -- (1,500) -- --
Maturities of short-term
investments.................... -- -- -- -- 1,500
Other assets.................... 12 (437) 368 284 (367)
------- ------- -------- -------- ------
Net cash provided by (used
for) investing activities.... (722) (3,053) (19,164) (16,608) 136
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings (repayments) under
line of credit................. 2,150 (1,075) (1,150) (1,150) 1,500
Bank overdraft.................. -- -- -- -- 555
Notes payable borrowings........ 15 350 39,298 39,298 --
Repayments of notes payable and
capital leases................. (251) (304) (13,413) (11,287) (3,025)
Repayment of subordinated notes
payable........................ -- -- (15,000) (15,000) --
Proceeds from issuance of common
stock.......................... 27 1,941 347 336 32
Proceeds from issuance of
preferred stock................ 588 -- 23,487 23,487 --
Repurchase and retirement of
common stock................... -- -- (19,287) (19,287) --
------- ------- -------- -------- ------
Net cash provided by (used
for) financing activities.... 2,529 912 14,282 16,397 (938)
Net increase (decrease) in cash. 37 143 2,647 5,367 (1,900)
Cash and equivalents, beginning. 2 39 182 182 2,829
------- ------- -------- -------- ------
Cash and equivalents, ending.... $ 39 $ 182 $ 2,829 $ 5,549 $ 929
======= ======= ======== ======== ======
SUPPLEMENTAL CASH FLOW
INFORMATION:
Interest paid................... $ 134 $ 411 $ 1,640 $ 474 $1,316
======= ======= ======== ======== ======
Income taxes paid............... $ 486 $ 2,050 $ 3,947 $ 3,646 $ 52
======= ======= ======== ======== ======
NONCASH INVESTING AND FINANCING
ACTIVITIES:
Conversion of notes payable to
common stock................... $ 500
=======
Conversion of subordinated notes
payable to common stock........ $ 565
=======
Conversion of preferred stock to
common stock................... $ 20 $ 588
======= =======
Acquisition of Pullbrite:
Fair value of assets acquired.. $ 33,387 $ 33,387
Cash paid...................... (15,000) (15,000)
Convertible note payable issued
to seller..................... (15,000) (15,000)
-------- --------
Liabilities assumed............ $ 3,387 $ 3,387
======== ========
</TABLE>
See notes to financial statements.
F-6
<PAGE>
INSYNC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Business--Insync Systems, Inc. (the "Company")
was incorporated in August 1989. The Company is primarily engaged in the
business of developing, manufacturing, and marketing gas delivery systems and
subassemblies for the semiconductor equipment industry. The Company's products
are sold primarily to customers in the United States and its business is
dependent on the worldwide demand for semiconductor equipment and
semiconductors.
Certain Significant Risks and Uncertainties--The preparation of financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the amounts disclosed as contingencies
at the date of the financial statements and the reported amounts of revenue
and expense for the periods presented. Actual results could differ from those
estimates. Such estimates include allowances for potentially uncollectible
accounts receivable, valuation reserves for inventories, accrued warranty
costs, and a valuation allowance for net deferred tax assets.
In addition, the Company operates in a dynamic industry and believes that
adverse changes in any of the following could have a negative impact on the
Company's future financial position, cash flows and results of operations: the
timing and product mix of significant orders and shipping schedules of its
customers; industry-wide changes in the demand for semiconductors or for
semiconductor manufacturing equipment; the ability of the Company to design,
manufacture, test and deliver defect-free gas delivery systems and
subassemblies in a timely and cost effective manner; the gain or loss of any
significant customer; competitive pressures; the timing of product
announcements by the Company's competitors, its customers or their
competitors; seasonal changes in purchases of semiconductor manufacturing
equipment; the availability and cost of components from the Company's
suppliers; and the availability of production capacity.
Concentration of Credit Risk--The Company extends credit to its customers,
most of whom are large, established companies in the semiconductor equipment
or semiconductor industries primarily located in California and Texas. Credit
risk is mitigated by the Company's credit evaluation process. The Company
generally does not require collateral or other security to support accounts
receivable. Reserves are maintained for estimated potential credit losses.
Cash and Equivalents--All highly liquid financial instruments purchased with
maturities of three months or less are included as cash and cash equivalents.
Short Term Investments--Short term investments consist primarily of
certificates of deposit with an original maturity date of greater than 90
days. At December 31, 1996, the fair value of short term investments
approximated cost.
Inventories--Inventories are stated at the lower of cost (first-in, first-
out) or market.
Property and Equipment--Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over estimated useful
lives of five years. Leasehold improvements are amortized over the shorter of
the lease term or the useful lives of the improvements.
Intangible Assets--Intangible assets consist primarily of a major customer
relationship arising from the acquisition of Pullbrite, Inc. (see Note 2)
which is being amortized using the straight-line method over five years. The
Company evaluates its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying value of an asset may not
be recoverable.
F-7
<PAGE>
INSYNC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Fair Value of Financial Instruments--Financial instruments consist of cash,
cash equivalents and long-term debt. The Company believes that the fair value
of financial instruments as reported in the balance sheets as of December 31,
1995 and 1996 and June 30, 1997 approximates cost. The carrying amount of cash
equivalents approximates fair value because of the short maturity of those
instruments. The fair value of long-term debt approximates the carrying amount
as the borrowings are at adjustable interest rates which reprice based on
fluctuations in market conditions and the level of operating cash flow of the
Company.
Revenue Recognition--Revenue from product sales is recognized at the time of
shipment or upon receipt by the customer if the terms are FOB destination
point. Product warranty costs are accrued in the period that sales are
recognized.
Stock-based Compensation--The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board No. 25 "Accounting for Stock Issued to Employees".
Income Taxes--The Company accounts for income taxes using an asset and
liability approach. Deferred tax liabilities are recognized for future taxable
amounts and deferred tax assets are recognized for future deductions, net of a
valuation allowance to reduce deferred tax assets to amounts that are more
likely than not to be realized.
Pro Forma Net Income (Loss) Per Share is based on the reported net income
(loss) adjusted for accretion of redeemable preferred stock, to arrive at net
income (loss) applicable to common stock. Pro forma net income (loss) per
share is computed using the weighted average number of common and dilutive
common equivalent shares outstanding in 1996 and 1997. Common equivalent
shares include redeemable preferred stock and common stock options and
warrants (using the treasury stock method). Common stock equivalents are
excluded from the computation if there is a net loss as their effect is anti-
dilutive, except that, pursuant to the Securities and Exchange Commission
Staff Accounting Bulletins and staff policy, common and common equivalent
shares issued during the period commencing twelve months prior to the initial
filing of a proposed public offering at prices below the assumed public
offering price have been included in the calculation as if they were
outstanding for all periods presented (using the treasury stock method at an
assumed offering price per share for stock options and the if-converted method
for redeemable preferred stock). Historical net income per share for 1994 and
1995 has not been presented as such computations are not meaningful because of
the significant change in the Company's capital structure from the conversion
of its redeemable preferred stock that is anticipated to occur in connection
with its proposed initial public offering.
Unaudited Pro Forma Information--The unaudited pro forma information gives
effect to the conversion of all outstanding shares of redeemable preferred
stock into an aggregate of 2,352,940 shares of common stock upon the closing
of the initial public offering contemplated by this Prospectus.
Recently Issued Accounting Standards--In February 1997, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standard ("SFAS') No. 128, "Earnings Per Share" which establishes and
simplifies the standards for computing and presenting earnings per share data.
SFAS No. 128 will become effective for the Company beginning with the fiscal
year ended December 31, 1997 and requires that all previously reported
earnings per share data included in any future presentations be restated.
Early adoption of SFAS No. 128 is not permitted. SFAS No. 128 replaces primary
and fully diluted earnings per share with basic and diluted earnings per
share. Pro forma basic and diluted earnings (loss) per share under SFAS No.
128 for the year ended December 31, 1996 and the six months ended June 30,
1997 would not have been materially different from the pro forma amounts
reported.
F-8
<PAGE>
INSYNC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". This statement establishes standards for the reporting and
presentation of comprehensive income and its components. Comprehensive income
is defined as the change in equity of a business enterprise during a period
arising from transactions, events or circumstances from non-owner sources. It
includes all changes in equity during a period except those resulting from
investments by or distributions to owners. SFAS No. 130 will become effective
for the Company beginning with the year ended December 31, 1998 and will
require the presentation of total comprehensive income and its major
components for the period. Also in June 1997, the FASB issued SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information" which
establishes annual and interim reporting standards for an enterprise's
business segments and related disclosures about its products, services,
geographic areas, and major customers. It will become effective for the
Company beginning with the year ended December 31, 1998. Adoption of these
statements will have no impact on the Company's financial position, results of
operations or cash flows.
Interim Financial Data--In the opinion of the Company's management, the
interim data includes all adjustments, consisting of only normal recurring
accruals, necessary for a fair presentation of the results of operations for
such periods. The audited results for the six months ended June 30, 1997 are
not necessarily indicative of the results to be expected for the full year or
for any other interim period. Information relating to the six months ended
June 30, 1996 is unaudited.
2. ACQUISITION OF PULLBRITE
On January 2, 1996, the Company acquired certain assets and assumed certain
liabilities of Pullbrite, Inc. for $30 million. Pullbrite, Inc. was an
independent provider of gas delivery systems and subassemblies to
semiconductor equipment manufacturers. The purchase price of $30 million was
paid in cash of $15 million (financed through a bank line of credit and note
payable--see Note 5) and the issuance of a $15 million subordinated
convertible note payable to the former owners of Pullbrite, Inc. The
acquisition has been accounted for by the purchase method of accounting. The
excess of the purchase price over the estimated fair value of the net tangible
assets acquired was allocated $14.4 million to a major customer relationship
and $7.3 million to goodwill. During the second and third quarters of 1996,
the Company experienced a significant reduction in business from the major
customer and a competitor was selected to supply gas delivery systems for one
of the customer's new products. As a result, management evaluated the
recoverability of the carrying value of the major customer relationship and
related goodwill. As a result of this evaluation, management wrote off the
goodwill and reduced the carrying value of the major customer relationship to
its fair value, determined based on the expected discounted cash flows from
this relationship. Additionally, management reduced the amortization period
for the remaining related intangible from 15 years to five years.
Had the acquisition of Pullbrite, Inc. occurred at January 1, 1995,
unaudited pro forma net sales, gross profit and net income would have been
$98.2 million, $29.3 million and $8.6 million, respectively; however, these
pro forma amounts are not necessarily indicative of the actual results of
operations had the acquisition occurred on that date.
3. RESTRUCTURING CHARGES
In September 1996, the Company restructured its operations and recognized a
$1.3 million charge in response to declining revenues resulting from a
downturn in the semiconductor equipment industry. The restructuring included
the reduction of the work force, disposition of unproductive assets and
facility consolidations and was completed during the fourth quarter of 1996.
The initial estimate of
F-9
<PAGE>
INSYNC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
$1.3 million was reduced by $465,000 in the fourth quarter due to the favorable
outcome of a lease amendment. The total cost of the Company's restructuring
actions reduced 1996 pretax income by $858,000 which consisted of $573,000 in
write downs for the disposition of unproductive assets and $285,000 relating to
severance and other facility expenses. As of December 31, 1996, all of the
restructuring costs had been incurred and there were no related liabilities
remaining.
4. BALANCE SHEET DETAILS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- JUNE 30,
1995 1996 1997
------ ------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Accounts receivables:
Receivables.................................... $7,462 $5,872 $ 9,476
Less allowance................................. (75) (107) (129)
------ ------ -------
$7,387 $5,765 $ 9,347
====== ====== =======
Inventories:
Raw materials.................................. $3,534 $5,175 $ 4,663
Work in process................................ 1,685 1,242 2,280
Finished goods................................. 445 1,415 3,204
------ ------ -------
$5,664 $7,832 $10,147
====== ====== =======
Property and equipment:
Machinery and equipment........................ $2,894 $6,422 $ 7,069
Furniture and fixtures......................... 967 1,242 1,426
Leasehold improvements......................... 679 577 823
------ ------ -------
4,540 8,241 9,318
Less accumulated depreciation and amortization... (1,136) (2,597) (3,470)
------ ------ -------
$3,404 $5,644 $ 5,848
====== ====== =======
Intangibles...................................... $ -- $5,020 $ 5,020
Less accumulated amortization.................. -- (1,125) (1,535)
------ ------ -------
$ -- $3,895 $ 3,485
====== ====== =======
Accrued liabilities:
Compensation and benefits...................... $ 707 $ 356 $ 532
Other.......................................... 884 692 379
------ ------ -------
$1,591 $1,048 $ 911
====== ====== =======
</TABLE>
5. CREDIT FACILITIES
At June 30, 1997, the Company had a bank credit facility commitment
consisting of a term note maturing June 28, 2000 ($24 million outstanding at
June 30, 1997) and $1.5 million outstanding under a $5 million revolving credit
facility maturing June 28, 1998. Borrowings bear interest at the bank's prime
rate (8.5% at June 30, 1997) plus a margin (2% at June 30, 1997) ranging from
0% to 2% which adjusts based on the Company's leverage ratio. The notes are
secured by all tangible and intangible assets, real and personal property.
Principal is due in 16 consecutive increasing quarterly installments and
interest is payable monthly. Advances under the revolving note are limited to
80% of eligible accounts
F-10
<PAGE>
INSYNC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
receivables and a commitment fee (0.50% at June 30, 1997), ranging from 0.25%
to 0.50% which adjusts under the same terms as the margin, is payable quarterly
in arrears on any unborrowed portion. As of June 30, 1997, the Company had
outstanding guarantees of $635,000 granted in the form of a standby letter of
credit under its revolving credit facility.
Terms of the credit facility impose certain restrictions on the payment of
dividends and require the Company to maintain minimum quarterly financial
covenants including leverage and current ratios, operating cash flow coverage
and sustained profitability (see Note 13).
Secured promissory notes are due in monthly installments through 2000 with
interest at 11% and are secured by the underlying machinery and equipment
purchased.
Long-term obligations consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- JUNE 30,
1995 1996 1997
----- ------- --------
<S> <C> <C> <C>
Bank notes payable............................... $ 348 $27,000 $24,000
Secured promissory note.......................... 253 188 163
----- ------- -------
Total.......................................... 601 27,188 24,163
Current portion.................................. (188) (6,552) (7,055)
----- ------- -------
Long-term obligations............................ $ 413 $20,636 $17,108
===== ======= =======
</TABLE>
Maturities of long-term obligations as of June 30, 1997 are as follows (in
thousands):
<TABLE>
<S> <C>
Period Ending December 31,
1997 (six months).................. $ 3,527
1998............................... 7,553
1999............................... 8,548
2000............................... 4,535
-------
$24,163
=======
</TABLE>
F-11
<PAGE>
INSYNC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. LEASE COMMITMENTS
The Company leases its primary facilities and certain equipment under
operating leases expiring from July 1997 through September 2001. The Company
has a five year lease for its Austin, Texas facility expiring in September
2001. This lease has two five-year renewal options. Additionally, the Company
has two five-year renewal options to extend its Milpitas, California facility
lease which expires in August 2000. The Company also leases its Fremont
facilities from the former owners of Pullbrite, Inc. through December 31,
2001. This lease has two additional five-year renewal options. Minimum lease
payments to the former owners of Pullbrite, Inc. are $12,600 per month.
Future minimum payments due under non-cancelable operating lease
arrangements as of June 30, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
Period Ending December 31,
1997 (six months)................... $1,251
1998................................ 2,507
1999................................ 2,284
2000................................ 1,948
2001................................ 916
------
Total minimum lease payments.......... $8,906
======
</TABLE>
Rent expense was $262,000, $403,000 and $1,369,000 for the years ended
December 31, 1994, 1995 and 1996, respectively; and $606,000 and $848,000 for
the six months ended June 30, 1996 and 1997, respectively.
7. REDEEMABLE PREFERRED STOCK AND COMMON STOCK PUT WARRANTS
Redeemable Preferred Stock--In January and March of 1996, the Company issued
3,000,000 shares of redeemable preferred stock for total gross proceeds of $24
million. Approximately $5 million was used for operational purposes and the
remainder was used to repurchase common stock from existing shareholders. The
redeemable preferred stock is redeemable for $24 million in two equal annual
installments beginning with the fifth anniversary of its issuance. Redeemable
preferred stock offering costs of $513,000 were netted against the proceeds.
The carrying value of the redeemable preferred stock is being accreted ratably
over the five year redemption period. The redeemable preferred stock
automatically converts into a maximum of 2,352,940 shares of common stock upon
an initial public offering meeting certain criteria (see Note 13).
The holders of the redeemable preferred stock have voting rights similar to
common shareholders and may vote on all matters except the election of board
members (they may elect their representative board member). Preferred
shareholders are also entitled to certain preferences on liquidation or
dissolution of the Company and to noncumulative annual cash dividends of $0.48
per share prior and in preference to any declaration or payment of dividends
on the Company's common stock. The redeemable preferred stock has a
liquidation preference of $16 per share.
In connection with the redeemable preferred stock issuance, the Company
granted to the holders of the redeemable preferred stock warrants to acquire
66,666 shares of the Company's common stock at an exercise price of $12.00 per
share. These warrants are exercisable through January 1998 (see Note 13). The
estimated fair value of the warrants of $223,000 was allocated to common
stock.
F-12
<PAGE>
INSYNC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Common Stock Put Warrants--In connection with the modification of certain
financial covenants related to the Company's revolving credit facility
commitment in April 1997, the Company issued warrants to acquire 40,000 shares
of the Company's common stock at a price of $0.015 per share to its senior
lenders. The warrants are exercisable through April 29, 2002 and the Company,
at the option of the holder, may be obligated to purchase the common stock
underlying these warrants at a price of $9.00 per share. The estimated fair
value of the put warrants of $360,000 was recognized as additional interest
expense during the six months ended June 30, 1997.
8. SHAREHOLDERS' EQUITY (DEFICIENCY)
Stock Option Plan
The Company's stock option plans (the "plans") permits the grant of incentive
and nonqualified stock options to key employees, officers, directors and
consultants. Under the plans, incentive stock options are issued at no less
than 100% of the fair market value of the Company's common stock as determined
at the date of grant or no less than 85% of fair market value for nonqualified
stock options. Generally, options granted under the plans have a term of ten
years from the date of grant and vest ratably over four or five years as
determined by the Board of Directors.
As discussed in Note 1, the Company applies APB No. 25 and related
interpretations in accounting for its plans. The Company recognizes deferred
compensation for the difference between the exercise price and the fair market
value of the Company's common stock on the date of grant for options granted to
employees. Deferred stock compensation is being amortized on a straight-line
basis over the five-year vesting period of the underlying options. The related
expense was $0, $0, $160,000, and $23,000 for the years ended December 31,
1994, 1995 and 1996 and the six months ended June 30, 1997, respectively.
F-13
<PAGE>
INSYNC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In July 1996, the Company repriced all outstanding stock options which had
been previously granted at a price greater than $6.00. The Company canceled the
existing stock options to purchase 240,000 shares of common stock and granted
new options with an exercise price of $6.00. These options are included in 1996
option activity. A summary of stock option activity under the plans is as
follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
------------------------
NUMBER OF WEIGHTED
SHARES AVERAGE PRICE
--------- -------------
<S> <C> <C>
January 1, 1994....................................... --
Granted............................................. 713,921 $1.23
Canceled............................................ (136,624) 0.75
---------
December 31, 1994..................................... 577,297 1.35
Granted............................................. 438,710 5.87
Exercised........................................... (1,866) 0.75
Canceled............................................ (36,125) 1.10
---------
December 31, 1995 (154,746 options exercisable at a
weighted average price of $1.66 per share)........... 978,016 3.39
Granted............................................. 558,043 6.68
Exercised........................................... (17,395) 1.21
Canceled............................................ (372,777) 7.61
---------
December 31, 1996 (330,636 options exercisable at a
weighted average price of $2.38 per share)........... 1,145,887 3.65
Granted............................................. 166,488 6.00
Exercised........................................... (13,431) 2.31
Canceled............................................ (41,043) 5.99
---------
June 30, 1997......................................... 1,257,901 3.90
=========
</TABLE>
Had compensation cost, for awards under the plans, been determined based on
the methodology prescribed by SFAS No. 123 "Accounting for Stock-Based
Compensation", the estimated weighted average fair value per option as of the
grant date for the awards made during 1995 and 1996 and the six months ended
June 30, 1997 would have been $1.61, $1.91 and $1.65, respectively. At June 30,
1997, 509,407 shares were available for future grant.
The following table summarizes information as of June 30, 1997 concerning
currently outstanding and exercisable options:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------- ----------- ---------------- -------------- ----------- ----------------
(YEARS)
<S> <C> <C> <C> <C> <C>
$ 0.75 292,483 6.8 $0.75 169,090 $0.75
2.25--2.475 204,995 7.4 2.43 81,997 2.43
4.50--6.00 760,423 8.6 5.50 199,050 4.91
--------- -------
0.75--6.00 1,257,901 8.0 3.90 450,137 2.90
========= =======
</TABLE>
F-14
<PAGE>
INSYNC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SFAS No. 123 requires the disclosure of pro forma net income and earnings per
share had the Company adopted the fair value method as of the beginning of the
year ended December 31, 1996. Under SFAS No. 123, the fair value of stock-based
awards to employees is calculated through the use of option pricing models,
even though such models were developed to estimate the fair value of freely
tradable, fully transferable options without vesting restrictions, which
significantly differs from the Company's stock option awards. These models also
require subjective assumptions, including future stock price volatility and
expected time to exercise, which greatly affects the calculated values.
The Company's calculations were made using the Black-Scholes option pricing
model with the following weighted average assumptions: expected life, 5.5
years; no stock volatility; risk free interest rate of 6%; and no dividends
during the expected term. The Company's calculations are based on a multiple
option valuation approach and forfeitures are recognized as they occur. If the
computed fair value of granted awards had been amortized to expense over the
vesting period of the awards, pro forma net income (loss) applicable to common
shareholders would have been $2,982,000, $(6,884,000) ($0.90 net loss per
share) and $73,000 ($0.01 net income per share) for the years ended December
31, 1995 and 1996 and the six months ended June 30, 1997, respectively.
However, the impact of outstanding non-vested stock options granted prior to
January 1, 1995 has been excluded from the pro forma calculation; accordingly,
the pro forma adjustments for the years ended December 31, 1995 and 1996 and
the six months ended June 30, 1997 are not necessarily indicative of future
period pro forma adjustments, when the calculation will apply to all applicable
stock options.
Common Stock Grants
The Company issued 6,000 and 20,000 shares of common stock to consultants in
consideration of services performed during 1994 and 1995, respectively, and
recognized the estimated fair value of the common stock as expense on the dates
issued of $9,000 and $80,000, respectively.
Employee Stock Purchase Plan
During 1997, the Company established an employee stock purchase plan and
reserved 166,666 shares of common stock subject to shareholder's approval.
Common Stock Reserved for Issuance
At June 30, 1997, the Company has reserved or otherwise committed to issue
shares of common stock as follows:
<TABLE>
<S> <C>
Preferred stock.................................................. 2,352,940
Exercise of options.............................................. 1,667,309
Exercise of warrants............................................. 317,996
Employee stock purchase plan..................................... 166,666
---------
4,504,911
=========
</TABLE>
Subsequent to June 30, 1997, the Board of Directors approved an increase of
266,666 shares in the number of shares available for grant under the Company's
stock option plans.
F-15
<PAGE>
INSYNC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. INCOME TAXES
The components of the provision for income taxes are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------------- ----------------
1994 1995 1996 1996 1997
----- ------ ------- ----------- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Currently payable:
Federal.............................. $ 574 $2,023 $ 2,383 $2,967 $ 12
State................................ 152 550 656 601 8
----- ------ ------- ------ ----
726 2,573 3,039 3,568 20
Deferred:
Federal.............................. (168) (383) (5,810) (200) 135
State................................ (45) (102) (1,543) (133) 34
----- ------ ------- ------ ----
(213) (485) (7,353) (333) 169
----- ------ ------- ------ ----
Total.............................. $ 513 $2,088 $(4,314) $3,235 $189
===== ====== ======= ====== ====
</TABLE>
A reconciliation between the Company's effective tax rate to the statutory
rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------- ----------------
1994 1995 1996 1996 1997
---- ---- ---- ----------- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Tax at federal statutory rate................... 35% 35% 35% 35% 35%
State income taxes, net of federal benefit...... 6 6 6 6 6
Research and Development credits................ (2) (2) -- -- --
Other........................................... 2 2 (2) (1) --
--- --- --- --- ---
Total......................................... 41% 41% 39% 40% 41%
=== === === === ===
</TABLE>
The components of the net deferred tax asset consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- JUNE 30,
1995 1996 1997
------ ------- --------
<S> <C> <C> <C>
Deferred tax assets--accruals and reserves recognized
in different periods................................. $ 812 $ 1,694 $1,691
Deferred tax assets--intangible assets recognized in
different periods.................................... -- 6,504 6,380
Deferred tax liabilities--depreciation and
amortization......................................... (98) (131) (173)
----- ------- ------
Net deferred tax asset................................ $ 714 $ 8,067 $7,898
===== ======= ======
</TABLE>
F-16
<PAGE>
INSYNC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
10. MAJOR CUSTOMERS
Sales to major customers in relation to net sales are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------- ------------------------------
CUSTOMER 1994 1995 1996 1996 1997
-------- ------- ------- ------- ---------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
A 67% 65% 33% 34% 30%
B 29 32 16 16 20
C * * 32 36 29
D * * * * 11
</TABLE>
Accounts receivable with major customers as a percentage of total receivables
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------- JUNE 30,
CUSTOMER 1995 1996 1997
-------- ------ ------ --------
<S> <C> <C> <C>
A 47% 22% 23%
B 52 * *
C * 35 47
D * 12 15
E * 14 *
</TABLE>
*Less than 10% of total.
11. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) tax-deferred savings plan under which participants
may contribute up to 20% of their compensation, subject to certain Internal
Revenue Service limitations. Additionally, the Company makes matching
contributions on behalf of each plan participant equal to $0.50 per dollar of
the contributions made by the participant, not to exceed an amount equal to 3%
of their annual compensation. The Company's contributions were none, $60,000,
$225,000 and $114,000 for the years ended December 31, 1994, 1995 and 1996 and
for the six months ended June 30, 1997, respectively. In addition, the Company
committed in fiscal 1995 to issue 8,600 shares of common stock to the plan and
recognized expense of $77,000 representing the estimated fair value of the
shares at the date contributed.
12. RELATED PARTY TRANSACTIONS
Related party transactions not otherwise disclosed herein are as follows:
A consulting firm in which the Company's chairman had a minority interest
provides sales and management development training services to the Company.
During the six months ended June 30, 1997 and the years ended December 31,
1996, 1995 and 1994, the Company paid $157,000, $241,000, $144,000 and $64,000,
respectively, for these services. Additionally, the Company issued in 1995 to
the president of this firm options to acquire 50,000 shares of common stock at
an exercise price of $4.50 per share.
Also during the six months ended June 30, 1997 and the years ended December
31, 1996, 1995 and 1994, the Company paid $100,000, $112,000, $186,000 and
$110,000 respectively, for services performed by consultants of a firm whose
president is a director of the Company. During 1995, the Company issued options
and warrants to acquire 99,997 shares of the Company's common stock at a
weighted average exercise price of $2.75 per share to consultants of this firm
for services performed.
F-17
<PAGE>
INSYNC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In 1995, the Company recognized $200,000 as expense for the estimated fair
value of the equity instruments granted during that year.
13. SUBSEQUENT EVENTS
On September 26, 1997, the Board of Directors, acting pursuant to prior
shareholder authorization, approved a two-for-three reverse split of its common
stock. All share and per share information has been adjusted to retroactively
give effect to the reverse split for all periods presented.
On September 26, 1997, the holders of the redeemable preferred stock elected
to convert their shares pursuant to their conversion rights into an aggregate
of 2,352,940 shares of common stock upon the closing of the initial public
offering contemplated by this Prospectus. In connection with this, the Company
agreed to extend the expiration date of certain warrants previously granted to
the shareholders by one year.
Also on September 26, 1997, the Company obtained an amendment to its bank
credit facility revising its financial covenants through December 31, 1997. As
of June 30, 1997, the Company was in compliance with the financial covenants as
amended. In connection with the amendment, the Company issued to its senior
lenders common stock put warrants to acquire 10,000 shares of the Company's
common stock at a price of $0.015 per share. The Company, at the option of the
holder, may be obligated to purchase the common stock underlying these warrants
at a price of $9.00 per share.
F-18
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Pullbrite, Inc.:
We have audited the accompanying balance sheets of Pullbrite, Inc. as of
September 30, 1994 and 1995, and the related statements of income,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Pullbrite, Inc. as of September 30, 1994
and 1995, and the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
San Jose, California
October 20, 1995
(January 2, 1996 as to Note 9)
F-19
<PAGE>
PULLBRITE, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------
1994 1995
------ -------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash......................................................... $ 850 $ 2,854
Short-term investments....................................... 155 189
Receivables, less allowances of $202 in 1994 and $40 in 1995. 3,074 4,900
Inventories.................................................. 1,319 2,586
Prepaid expenses............................................. 2 34
------ -------
Total current assets....................................... 5,400 10,563
PROPERTY AND EQUIPMENT, net.................................... 1,297 1,395
OTHER ASSETS................................................... 494 786
------ -------
TOTAL.......................................................... $7,191 $12,744
====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................. $ 693 $ 965
Accrued liabilities.......................................... 621 1,020
Income taxes payable......................................... 71 --
------ -------
Total current liabilities.................................. 1,385 1,985
DEFERRED RENT AND OTHER........................................ 42 30
------ -------
Total liabilities.......................................... 1,427 2,015
------ -------
STOCKHOLDERS' EQUITY:
Common stock, no par value, 500,000 shares authorized; shares
outstanding: 20,000......................................... 19 19
Unrealized gain (loss) on available-for-sale securities...... (7) 17
Retained earnings............................................ 5,752 10,693
------ -------
Total stockholders' equity................................. 5,764 10,729
------ -------
TOTAL.......................................................... $7,191 $12,744
====== =======
</TABLE>
See notes to financial statements.
F-20
<PAGE>
PULLBRITE, INC.
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
----------------
1994 1995
------- -------
<S> <C> <C>
NET SALES..................................................... $28,966 $42,484
COST OF SALES................................................. 20,173 28,482
------- -------
GROSS PROFIT.................................................. 8,793 14,002
------- -------
OPERATING EXPENSES-
Selling, general and administrative......................... 1,505 2,412
------- -------
INCOME FROM OPERATIONS........................................ 7,288 11,590
------- -------
OTHER INCOME (EXPENSE):
Interest income and other................................... 27 75
Interest expense............................................ (15) (5)
------- -------
Total other expense, net.................................. 12 70
------- -------
INCOME BEFORE INCOME TAXES.................................... 7,300 11,660
PROVISION FOR INCOME TAXES.................................... 213 216
------- -------
NET INCOME.................................................... $ 7,087 $11,444
======= =======
</TABLE>
See notes to financial statements.
F-21
<PAGE>
PULLBRITE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
UNREALIZED
COMMON STOCK GAIN
------------- (LOSS) ON RETAINED
SHARES AMOUNT SECURITIES EARNINGS TOTAL
------ ------ ---------- -------- -------
<S> <C> <C> <C> <C> <C>
BALANCES, October 1, 1993........... 20,000 $19 $-- $ 3,725 $ 3,744
Unrealized loss on available-for-
sale securities.................... (7) (7)
Distributions....................... (5,060) (5,060)
Net income.......................... 7,087 7,087
------ --- --- ------- -------
BALANCES, September 30, 1994........ 20,000 19 (7) 5,752 5,764
Unrealized gain on available-for-
sale securities.................... 24 24
Distributions....................... (6,503) (6,503)
Net income.......................... 11,444 11,444
------ --- --- ------- -------
BALANCES, September 30, 1995........ 20,000 $19 $17 $10,693 $10,729
====== === === ======= =======
</TABLE>
See notes to financial statements.
F-22
<PAGE>
PULLBRITE, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
----------------
1994 1995
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................... $ 7,087 $11,444
Reconciliation to net cash provided by operating activities:
Depreciation and amortization............................... 163 259
Loss on disposal of equipment............................... 14 --
Loss on sale of securities.................................. 14 --
Deferred rent............................................... 13 (12)
Changes in assets and liabilities:
Receivables................................................ (1,021) (1,826)
Inventories................................................ (422) (1,267)
Prepaid expenses........................................... 6 (32)
Accounts payable........................................... (183) 272
Accrued expenses........................................... 232 399
Income taxes payable....................................... (13) (71)
------- -------
Net cash provided by operating activities................. 5,890 9,166
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.......................... (842) (391)
Proceeds from sale of equipment.............................. -- 34
Other assets................................................. (374) (292)
Purchase of investments...................................... (3,160) (10)
Proceeds from sale of investments............................ 2,984 --
------- -------
Net cash used for investing activities.................... (1,392) (659)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit.............................. 350 --
Repayment of line of credit.................................. (350) --
Repayments of notes payable.................................. (144) --
Distributions to shareholders................................ (5,060) (6,503)
------- -------
Net cash used for financing activities.................... (5,204) (6,503)
------- -------
NET INCREASE (DECREASE) IN CASH............................... (706) 2,004
CASH, Beginning of period..................................... 1,556 850
------- -------
CASH, End of period........................................... $ 850 $ 2,854
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid................................................ $ 36 $ 5
======= =======
Income taxes paid............................................ $ 121 $ 287
======= =======
</TABLE>
See notes to financial statements.
F-23
<PAGE>
PULLBRITE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1994 AND 1995
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF BUSINESS--Pullbrite, Inc. (the Company) was
incorporated in August 1980. The Company is primarily in the business of
manufacturing and selling gas control and vacuum systems and subassemblies
and electro-polishing of stainless steel parts for the semiconductor
manufacturing industry.
CONCENTRATION OF CREDIT RISK--Financial instruments that potentially
subject the Company to concentration of credit risk consist of short-term
investments and accounts receivable. Short-term investments consist
primarily of mutual fund accounts that are regularly monitored by
management. For the years ended September 30, 1994 and 1995, one customer,
a major manufacturer of semiconductor equipment, represented 81%, and 79%
of net sales, respectively. At September 30, 1994 and 1995, 78% and 80% of
receivables were due from that customer, respectively. The Company also
extends credit to its other customers, most of whom are located in
California and operate in the semiconductor equipment industry. Credit risk
with respect to the trade receivables is mitigated by the Company's credit
evaluation process. The Company generally does not require collateral or
other security to support accounts receivable.
INVESTMENTS--Investments consist primarily of mutual fund accounts. Short-
term investments are classified as available for sale securities and are
stated at market value. The unrealized gain (loss) of $(7,000) and $17,000
at September 30, 1994 and 1995, respectively, has been recognized as a
separate component of stockholders' equity.
INVENTORIES--Inventories are stated at the lower of cost (first-in, first-
out) or market.
PROPERTY AND EQUIPMENT--Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over estimated
useful lives of five to seven years. Leasehold improvements are amortized
over their estimated useful lives of thirty years, although these lives are
longer than the terms of the related leases. These leases are with related
parties, and management has the ability and intends to extend these leases.
REVENUE RECOGNITION--Revenues from product sales are recognized at the time
of shipment. Product warranty costs are accrued in the period that sales
are recognized.
INCOME TAXES--The Company has elected to be taxed as an S Corporation for
federal and state income tax purposes. In lieu of corporate income taxes,
the shareholders of an S Corporation are taxed on their proportionate share
of the Company's taxable income. Therefore, no provision for federal income
taxes has been included in these financial statements. Although the S
Corporation election is recognized for California income tax purposes, this
state requires S Corporations to pay a tax of 1.5% (2.5% before 1995) of
taxable income.
2. INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------
1994 1995
------ ------
<S> <C> <C>
Finished goods.............................................. $ 147 $ 581
Work in process............................................. 169 408
Raw materials............................................... 1,003 1,597
------ ------
Total....................................................... $1,319 $2,586
====== ======
</TABLE>
F-24
<PAGE>
PULLBRITE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED SEPTEMBER 30, 1994 AND 1995
3. PROPERTY AND EQUIPMENT
Property and equipment consist of:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------
1994 1995
------ ------
<S> <C> <C>
Machinery and equipment................................... $1,556 $1,851
Furniture and fixtures.................................... 55 73
Leasehold improvements.................................... 396 406
------ ------
2,007 2,330
Accumulated depreciation and amortization................. (710) (935)
------ ------
$1,297 $1,395
====== ======
</TABLE>
4. ACCRUED LIABILITIES
Accrued liabilities consist of:
<TABLE>
<CAPTION>
SEPTEMBER
30,
-----------
1994 1995
---- ------
<S> <C> <C>
Compensation and benefits.................................... $337 $ 702
Other........................................................ 284 318
---- ------
Total........................................................ $621 $1,020
==== ======
</TABLE>
5. LINE OF CREDIT
At September 30, 1995, the Company had a $1,000,000 bank line of credit.
Borrowings bear interest at the bank's prime rate (8.75% at September 30,
1995) plus .5% and are collateralized by accounts receivable, inventory,
and equipment. The line of credit is guaranteed by the stockholders. The
line of credit contains restrictive covenants, including maintaining a
minimum current ratio of 2.0:1, and maximum debt to tangible net worth of
1.0:1. In addition, the Company must remain profitable on an annual basis.
There were no borrowings outstanding on this line of credit at September
30, 1994 and 1995.
6. LEASE COMMITMENTS
The Company conducts its operations in facilities that are leased from a
partnership which is owned by the stockholders of the Company. Rent expense
is recognized on a straight-line basis over the term of the lease due to
scheduled rent increases. Future minimum annual commitments as of September
30, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
1996.............................................................. $ 211
1997.............................................................. 211
1998.............................................................. 211
1999.............................................................. 236
2000.............................................................. 245
Thereafter........................................................ 797
------
Total............................................................. $1,911
======
</TABLE>
Rent expense to related parties for the years ended September 30, 1994 and
1995 was $204,000 and $211,000, respectively.
F-25
<PAGE>
PULLBRITE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
YEARS ENDED SEPTEMBER 30, 1994 AND 1995
7. INCOME TAXES
The provision for income taxes for the years ended September 30, 1994 and
1995 consisted of currently payable income taxes of $213,000 and $216,000.
8. EMPLOYEE BENEFIT PLANS
The Company has a profit sharing plan whereby the Company may contribute up
to 15% of the compensation of eligible employees. Employees who have
attained the age of twenty-one become eligible after one year of service.
Contributions to the profit sharing plan were $100,000 and $150,000 in each
of the years ended September 30, 1994 and 1995. The amount to be
contributed is discretionary and is determined each year by the Board of
Directors.
The Company also has a 401(k) tax-deferred savings plan under which
participants may contribute up to 25% of their compensation, subject to
Internal Revenue Service limitations. Contributions to the plan by the
Company equal 25% of the salary reduction elected by each employee up to a
maximum reduction of 4% of annual salary. The Company, at its option, may
contribute additional amounts to the plan. Company contributions to the
plan were $25,000 and $35,000 for the years ended September 30, 1994 and
1995, respectively.
9. SUBSEQUENT EVENTS
On January 2, 1996, the Company and its stockholders entered into a
definitive agreement with Insync Systems, Inc. (Insync), for Insync's
acquisition of certain assets and liabilities of the Company for
$30 million. On January 2, 1996, the acquisition was consummated and was
accounted for as a purchase.
F-26
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PRO-
SPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY UNDERWRITER OR ANY
SELLING SHAREHOLDER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
---------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 5
Use of Proceeds........................................................... 15
Dividend Policy........................................................... 15
Capitalization............................................................ 16
Dilution.................................................................. 17
Selected Financial Data................................................... 18
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 19
Business.................................................................. 28
Management................................................................ 39
Certain Transactions...................................................... 48
Principal and Selling Shareholders........................................ 50
Description of Capital Stock.............................................. 52
Shares Eligible for Future Sale........................................... 54
Underwriting.............................................................. 56
Legal Matters............................................................. 57
Experts................................................................... 58
Additional Information.................................................... 58
Index to Financial Statements............................................. F-1
</TABLE>
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT PAR-
TICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACT-
ING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Shares
[Insync Logo]
Common Stock
-----------
PROSPECTUS
-----------
BT Alex. Brown
PaineWebber Incorporated
Prudential Securities Incorporated
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated fees and expenses, other than
underwriting discounts and commissions, to be paid by the Company in connection
with this offering.
<TABLE>
<CAPTION>
AMOUNT
TO BE
PAID
--------
<S> <C>
Securities and Exchange Commission registration fee................ $ 11,819
NASD filing fee.................................................... 4,400
Nasdaq National Market listing fee................................. *
Accounting fees and expenses....................................... *
Legal fees and expenses............................................ 250,000
Printing........................................................... 300,000
Printing and engraving stock certificates.......................... *
Blue Sky fees and expenses......................................... 5,000
Transfer Agent and Registrar fees and expenses..................... *
Road show expenses................................................. *
Insurance premiums................................................. *
Miscellaneous...................................................... *
--------
Total............................................................ $ *
========
</TABLE>
- --------
* To be completed by amendment.
Pursuant to certain registration rights agreements between the Company and
the Selling Shareholders, no portion of the above expenses will be borne by
such Selling Shareholders.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 317 of the California Corporations Code authorizes a court to award,
or a corporation's Board of Directors to grant, indemnity to directors and
officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended. The Company's
Amended and Restated Articles of Incorporation and the Company's Bylaws provide
for indemnification of the Company's directors and officers to the maximum
extent permitted by the California Corporations Code. In addition, the Company
has entered into indemnification agreements with its officers and directors.
Reference is also made to Section 8 of the Underwriting Agreement indemnifying
officers and directors of the Company against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since August 1, 1994, the Company issued and sold the following unregistered
securities pursuant to the exemption from the registration requirements of the
Securities Act of 1933, as amended, provided by Section 4(2) of the Act or Rule
701 of the Act:
(1) In December 1994, the Company issued 222,222 shares of Common Stock
to a supplier for cancellation of indebtedness in the amount of $500,000.
(2) From December 1994 through August 1995, the Company issued 26,000
shares of Common Stock for services provided in lieu of cash of $89,000.
(3) From May 1995 through July 1995, the Company issued and sold 439,953
shares of Common Stock to a group of private investors for aggregate cash
consideration of $1,939,000, net of issuance costs.
II-1
<PAGE>
(4) In September 1995, the Company issued 13,333 shares of Common Stock
to a supplier upon the exercise of a warrant for an aggregate cash
consideration of $1,000.
(5) On January 30, 1996 and March 6, 1996, the Company issued and sold an
aggregate of 3,000,000 shares of Series A Preferred Stock and warrants to
purchase 66,666 shares of Common Stock to a group of private investors for
an aggregate cash consideration of $24,001,000.
(6) On January 2, 1996, the Company issued a $15 million convertible
promissory note to Pullbrite, Inc. in connection with the Company's
acquisition of Pullbrite, Inc.
(7) Between July 1, 1994 and August 1, 1997, the Company granted options
to directors and consultants pursuant to its 1993 Stock Option Plan, at
exercise prices of between $0.75 and $10.50. At August 1, 1997 options to
purchase 1,359,751 shares of Common Stock were outstanding.
(8) Between December 1993 and September 1997, the Company granted
warrants to directors, consultants and a lender of the Company to purchase
317,996 shares of Common Stock, at exercise prices ranging from $0.015 to
$12.00 per share.
(9) From August 1, 1995 through August 1, 1997, the Company issued and
sold 32,692 shares of Common Stock upon the exercise of stock options for
an aggregate consideration of $53,475.
ITEM 16. EXHIBITS
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
1.01 Form of Underwriting Agreement.
2.01 Purchase Agreement by and between Pullbrite, Inc., Byron L. Bertsch,
James E. Wyant and Insync Systems, Inc.*
3.01 Articles of Incorporation, as amended.
3.02 Form of Amended and Restated Articles of Incorporation of Registrant
to be in effect following completion of the Offering.*
3.03 Bylaws, as amended.
3.04 Form of bylaws, to be in effect following completion of the Offering.*
4.01 Specimen of Common Stock Certificate.
4.02 Insync Systems, Inc. Amended and Restated Registration Rights
Agreement dated January 19, 1996.
4.03 Insync Systems, Inc. Amended and Restated 1993 Stock Option Plan.
4.04 1997 Stock Plan and Stock Option Agreement.
4.05 Insync Systems, Inc. 1997 Employee Stock Purchase Plan with
Subscription Agreement.
4.06 Insync Systems, Inc. Profit Sharing/401(k) Plan.*
4.07 Insync Systems, Inc. Profit Sharing/401(k) Plan Adoption Agreement and
Summary Plan Description.*
4.08 Series A Preferred Stock and Warrant Purchase Agreement dated as of
January 30, 1996 and March 6, 1996.*
4.09 Forms of Warrant to Purchase Common Stock.*
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
4.10 Form of Employee and Affiliate Stock Purchase Agreement.
4.11 Officer and Director Lockup Agreement.*
5.01 Opinion of Wilson Sonsini Goodrich & Rosati, P.C. regarding legality
of securities being registered.*
10.01 Lease of 1463 Centre Pointe Drive, Milpitas, CA.*
10.02 Commercial Lease Agreement of 200 C. Parker Drive, Suite 600, Austin,
TX. 78728.*
10.03 Lease of 45437 Warm Springs Boulevard, Fremont, CA 94539.*
10.04 Lease of 1507 Centre Point Drive, Milpitas, CA.*
10.05 Consulting Services Agreement with Kairos.
10.06 Master Purchase Order and Sales Agreement with Applied Materials.*
10.07 Equity Agreement between Stanley L. Leopard and the Company.
10.08 Blank Purchase Agreement of Lam Research; Agreement #840-0001*
11.01 Statement regarding computation of per share earnings.
12.01 Statement regarding computation of ratios.*
23.01 Independent Auditors' Consent and Report on Schedules.
23.02 Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included in Exhibit
5.01).*
24.01 Power of attorney (See page II-5).
27.01 Financial Data Schedule.*
</TABLE>
- --------
* To be filed by amendment.
** Pursuant to Item 601(b)(2), certain schedules and other attachments have
been omitted from the indicated exhibits and which omitted items shall be
furnished supplementally to the Commission upon request.
*** Attached to the Registration Statement.
(b) The following financial statement schedule is filed herewith:
Schedule II Valuation and Qualifying Accounts.
Schedules not listed above have been omitted because the information required
to be set forth therein is inapplicable or is shown either in the financial
statements or the notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director,
II-3
<PAGE>
officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
The undersigned hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Milpitas, State of
California, on October 1, 1997.
Insync Systems, Inc.
/s/ Stanley L. Leopard
By: _________________________________
Stanley L. Leopard, Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stanley L. Leopard and Terence J. Griffin,
jointly and severally, his true and lawful attorneys-in-fact, each with the
power of substitution, for him, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this registration
statement, and to file the same, with all exhibits thereto and all documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact,
or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Stanley L. Leopard Chief Executive Officer and October 1, 1997
____________________________________ Director
Stanley L. Leopard
/s/ Terence J. Griffin Chief Financial Officer October 1, 1997
____________________________________
Terence J. Griffin
/s/ Frank R. Balma Director October 1, 1997
____________________________________
Frank R. Balma
/s/ Brent D. Elliot Director October 1, 1997
____________________________________
Brent D. Elliot
/s/ Michael C. Child Director October 1, 1997
____________________________________
Michael C. Child
/s/ Don M. Lyle Director October 1, 1997
____________________________________
Don M. Lyle
/s/ Russell G. Redenbaugh Director October 1, 1997
____________________________________
Russell G. Redenbaugh
/s/ W. Lee Shevel Director October 1, 1997
____________________________________
W. Lee Shevel
</TABLE>
II-5
<PAGE>
SCHEDULE II
INSYNC SYSTEMS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE OF CHARGED TO BALANCE AT
BEGINNING OF COST AND DEDUCTIONS/ END OF
PERIOD EXPENSES WRITE-OFF PERIOD
------------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1994
Accounts receivable allow-
ance........................ $ 4 $ 7 $ -- $ 11
Year ended December 31, 1995
Accounts receivable allow-
ance........................ $ 11 $247 $183 $ 75
Year ended December 31, 1996
Accounts receivable allow-
ance........................ $ 75 $390 $358 $107
Six month period ended June 30,
1997
Accounts receivable allow-
ance........................ $107 $ 22 $ -- $129
</TABLE>
S-1
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
1.01 Form of Underwriting Agreement.
2.01 Purchase Agreement by and between Pullbrite, Inc., Byron L. Bertsch,
James E. Wyant and Insync Systems, Inc.*
3.01 Articles of Incorporation, as amended.
3.02 Form of Amended and Restated Articles of Incorporation of Registrant
to be in effect following completion of the Offering.*
3.03 Bylaws, as amended.
3.04 Form of bylaws, to be in effect following completion of the Offering.*
4.01 Specimen of Common Stock Certificate.
4.02 Insync Systems, Inc. Amended and Restated Registration Rights
Agreement dated January 19, 1996.
4.03 Insync Systems, Inc. Amended and Restated 1993 Stock Option Plan.
4.04 1997 Stock Plan and Stock Option Agreement.
4.05 Insync Systems, Inc. 1997 Employee Stock Purchase Plan with
Subscription Agreement.
4.06 Insync Systems, Inc. Profit Sharing/401(k) Plan.*
4.07 Insync Systems, Inc. Profit Sharing/401(k) Plan Adoption Agreement and
Summary Plan Description.*
4.08 Series A Preferred Stock and Warrant Purchase Agreement dated as of
January 30, 1996 and March 6, 1996.*
4.09 Forms of Warrant to Purchase Common Stock.*
4.10 Form of Employee and Affiliate Stock Purchase Agreement.
4.11 Officer and Director Lockup Agreement.*
5.01 Opinion of Wilson, Sonsini, Goodrich & Rosati, PC regarding legality
of securities being registered.*
10.01 Lease of 1463 Centre Pointe Drive, Milpitas, CA.*
10.02 Commercial Lease Agreement of 200 C. Parker Drive, Suite 600, Austin,
TX 78728.*
10.03 Lease of 45437 Warm Springs Boulevard, Fremont, CA 94539.*
10.04 Lease of 1507 Centre Point Drive, Milpitas, CA.*
10.05 Consulting Services Agreement with Kairos.
10.06 Master Purchase Order and Sales Agreement with Applied Materials.*
10.07 Equity Agreement between Stanley L. Leopard and the Company.
10.08 Blank Purchase Agreement of Lam Research; Agreement #840-0001.*
11.01 Statement regarding computation of per share earnings.
12.01 Statement regarding computation of ratios.*
23.01 Independent Auditors' Consent and Report on Schedules.
23.02 Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included in Exhibit
5.01).*
24.01 Power of attorney (See page II-5).
27.01 Financial Data Schedule.*
</TABLE>
- --------
* To be filed by amendment.
** Pursuant to Item 601(b)(2), certain schedules and other attachments have
been omitted from the indicated exhibit and which omitted items shall be
furnished supplementally to the Commission upon request.
*** Attached to the Registration Statement.
<PAGE>
EXHIBIT 1.01
____________Shares
INSYNC SYSTEMS, INC.
Common Stock
($.01 Par Value)
UNDERWRITING AGREEMENT
----------------------
__________________, 19___
BT Alex. Brown Incorporated
Paine Webber, Inc.
Prudential Securities Inc.
As Representatives of the
Several Underwriters
c/o BT Alex. Brown Incorporated
One South Street
Baltimore, Maryland 21202
Gentlemen:
Insync Systems, Inc., a California corporation (the "Company"), and
certain shareholders of the Company (the "Selling Shareholders') propose to sell
to the several underwriters (the "Underwriters") named in Schedule I hereto for
whom you are acting as representatives (the "Representatives") an aggregate of
_________ shares of the Company's Common Stock, $.01 par value (the "Firm
Shares"), of which ________ shares will be sold by the Company and ________
shares will be sold by the Selling Shareholders. The respective amounts of the
Firm Shares to be so purchased by the several Underwriters are set forth
opposite their names in Schedule I hereto, and the respective amounts to be sold
by the Selling Shareholders are set forth opposite their names in Schedule II
hereto. The Company and the Selling Shareholders are sometimes referred to
herein collectively as the "Sellers." The Company [and] [the] [certain] Selling
Shareholders] also propose[s] to sell at the Underwriters' option an aggregate
of up to _______ additional shares of the Company's Common Stock (the "Option
Shares") as set forth below.
As the Representatives, you have advised the Company and the Selling
Shareholders (a) that you are authorized to enter into this Agreement on behalf
of the several Underwriters, and (b) that the several Underwriters are willing,
acting severally and not jointly, to purchase the numbers of Firm Shares set
forth opposite their respective names in Schedule I, plus their pro rata portion
of the Option Shares if you elect to exercise the over-allotment option in whole
or in part for the accounts of the several Underwriters. The Firm Shares and
the Option
<PAGE>
Shares (to the extent the aforementioned option is exercised) are herein
collectively called the "Shares."
In consideration of the mutual agreements contained herein and of the
interest of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. Representations and Warranties of the Company and the Selling
-------------------------------------------------------------
Shareholders.
- ------------
(a) The Company represents and warrants to each of the Underwriters as
follows:
(i) A registration statement on Form S-1 (File No. 333-
_______) with respect to the Shares has been carefully prepared by the Company
in conformity with the requirements of the Securities Act of 1933, as amended
(the "Act"), and the Rules and Regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") thereunder and has been
filed with the Commission. The Company has complied with the conditions for the
use of Form S-1. Copies of such registration statement, including any amendments
thereto, the preliminary prospectuses (meeting the requirements of the Rules and
Regulations) contained therein and the exhibits, financial statements and
schedules, as finally amended and revised, have heretofore been delivered by the
Company to you. Such registration statement, together with any registration
statement filed by the Company pursuant to Rule 462(b) of the Act, herein
referred to as the "Registration Statement," which shall be deemed to include
all information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, has become effective under the Act and no
post-effective amendment to the Registration Statement has been filed as of the
date of this Agreement. "Prospectus" means (a) the form of prospectus first
filed with the Commission pursuant to Rule 424(b) or (b) the last preliminary
prospectus included in the Registration Statement filed prior to the time it
becomes effective or filed pursuant to Rule 424(a) under the Act that is
delivered by the Company to the Underwriters for delivery to purchasers of the
Shares, together with the term sheet or abbreviated term sheet filed with the
Commission pursuant to Rule 424(b)(7) under the Act. Each preliminary prospectus
included in the Registration Statement prior to the time it becomes effective is
herein referred to as a "Preliminary Prospectus."
(ii) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
California, with corporate power and authority to own or lease its properties
and conduct its business as described in the Registration Statement. Each of the
subsidiaries of the Company as listed in Exhibit A hereto (collectively, the
"Subsidiaries") has been duly organized and is validly existing as a corporation
in good standing under the laws of the jurisdiction of its incorporation, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement. The Subsidiaries are the
only subsidiaries, direct or indirect, of the Company. The Company and each of
the Subsidiaries are duly qualified to transact business in all jurisdictions in
which the conduct of their business requires such qualification. The outstanding
shares of capital stock of each of the Subsidiaries have been duly authorized
and validly issued, are fully
2
<PAGE>
paid and non-assessable and are owned by the Company or another Subsidiary free
and clear of all liens, encumbrances and equities and claims; and no options,
warrants or other rights to purchase, agreements or other obligations to issue
or other rights to convert any obligations into shares of capital stock or
ownership interests in the Subsidiaries are outstanding.
(iii) The outstanding shares of capital stock of the Company,
including all shares to be sold by the Selling Shareholders, have been duly
authorized and validly issued and are fully paid and non-assessable; the portion
of the Shares to be issued and sold by the Company have been duly authorized and
when issued and paid for as contemplated herein will be validly issued, fully
paid and non-assessable; and no preemptive rights of stockholders exist with
respect to any of the Shares or the issue and sale thereof. Neither the filing
of the Registration Statement nor the offering or sale of the Shares as
contemplated by this Agreement gives rise to any rights, other than those which
have been waived or satisfied, for or relating to the registration of any shares
of Common Stock.
(iv) The information set forth under the caption
"Capitalization" in the Prospectus is true and correct. All of the Shares
conform to the description thereof contained in the Registration Statement. The
form of certificates for the Shares conforms to the corporate law of the
jurisdiction of the Company's incorporation.
(v) The Commission has not issued an order preventing or
suspending the use of any Prospectus relating to the proposed offering of the
Shares nor instituted proceedings for that purpose. The Registration Statement
contains, and the Prospectus and any amendments or supplements thereto will
contain, all statements which are required to be stated therein by, and will
conform, to the requirements of the Act and the Rules and Regulations. The
Registration Statement and any amendment thereto do not contain, and will not
contain, any untrue statement of a material fact and do not omit, and will not
omit, to state any material fact required to be stated therein or necessary to
make the statements therein not misleading. The Prospectus and any amendments
and supplements thereto do not contain, and will not contain, any untrue
statement of material fact; and do not omit, and will not omit, to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that the Company makes no representations or
warranties as to information contained in or omitted from the Registration
Statement or the Prospectus, or any such amendment or supplement, in reliance
upon, and in conformity with, written information furnished to the Company by or
on behalf of any Underwriter through the Representatives, specifically for use
in the preparation thereof.
(vi) The consolidated financial statements of the Company and
the Subsidiaries, together with related notes and schedules as set forth in the
Registration Statement, present fairly the financial position and the results of
operations and cash flows of the Company and the consolidated Subsidiaries, at
the indicated dates and for the indicated periods. Such financial statements and
related schedules have been prepared in accordance with generally accepted
principles of accounting, consistently applied throughout the periods involved,
except as disclosed herein, and all adjustments necessary for a fair
presentation of results for such periods have been made. The summary financial
and statistical data included in the Registration
3
<PAGE>
Statement presents fairly the information shown therein and such data has been
compiled on a basis consistent with the financial statements presented therein
and the books and records of the Company. The pro forma financial statements and
other pro forma financial information included in the Registration Statement and
the Prospectus present fairly the information shown therein, have been prepared
in accordance with the Commission's rules and guidelines with respect to pro
forma financial statements, have been properly compiled on the pro forma bases
described therein, and, in the opinion of the Company, the assumptions used in
the preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances referred to
therein.
(vii) Deloitte & Touche, LLP, who have certified certain of the
financial statements filed with the Commission as part of the Registration
Statement, are independent public accountants are required by the Act and the
Rules and Regulations.
(viii) There is no action, suit, claim or proceeding pending or,
to the knowledge of the Company, threatened against the Company or any of the
Subsidiaries before any court or administrative agency or otherwise which if
determined adversely to the Company or any of its Subsidiaries might result in
any material adverse change in the earnings, business, management, properties,
assets, rights, operations, condition (financial or otherwise) or prospects of
the Company and the Subsidiaries taken as a whole or to prevent the consummation
of the transactions contemplated hereby, except as set forth in the Registration
Statement.
(ix) The Company and the Subsidiaries have good and marketable
title to all of the properties and assets reflected in the financial statements
(or as described in the Registration Statement) hereinabove described, subject
to no lien, mortgage, pledge, charge or encumbrance of any kind except those
reflected in such financial statements (or as described in the Registration
Statement) or which are not material in amount. The Company and the Subsidiaries
occupy their leased properties under valid and binding leases conforming in all
material respects to the description thereof set forth in the Registration
Statement.
(x) The Company and the Subsidiaries have filed all Federal,
State, local and foreign income tax returns which have been required to be filed
and have paid all taxes indicated by said returns and all assessments received
by them or any of them to the extent that such taxes have become due. All tax
liabilities have been adequately provided for in the financial statements of the
Company.
(xi) Since the respective dates as of which information is
given in the Registration Statement, as it may be amended or supplemented, there
has not been any material adverse change or any development involving a
prospective material adverse change in or affecting the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise), or prospects of the Company and its Subsidiaries taken as a whole,
whether or not occurring in the ordinary course of business, and there has not
been any material transaction entered into or any material transaction that is
probable of being entered into by the Company or the Subsidiaries, other than
transactions in the ordinary course of business and changes and transactions
described in the Registration Statement, as it may be amended or
4
<PAGE>
supplemented. The Company and the Subsidiaries have no material contingent
obligations which are not disclosed in the Company's financial statements which
are included in the Registration Statement.
(xii) Neither the Company nor any of the Subsidiaries is or
with the giving of notice or lapse of time or both, will be, in violation of or
in default under its Articles of Incorporation or By-Laws or under any
agreement, lease, contract, indenture or other instrument or obligation to which
it is a party or by which it, or any of its properties, is bound and which
default is of material significance in respect of the condition, financial or
otherwise of the Company and its Subsidiaries taken as a whole or the business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company and the Subsidiaries taken as a whole.
The execution and delivery of this Agreement and the consummation of the
transactions herein contemplated and the fulfillment of the terms hereof will
not conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust or other
agreement or instrument to which the Company or any Subsidiary is a party, or of
the Articles of Incorporation or By-laws of the Company or any order, rule or
regulation applicable to the Company or any Subsidiary of any court or of any
regulatory body or administrative agency or other governmental body having
jurisdiction.
(xiii) Each approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory, administrative or
other governmental body necessary in connection with the execution and delivery
by the Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the Commission,
the National Association of Securities, Inc. (the "NASD") or such additional
steps as may be necessary to qualify the Shares for public offering by the
Underwriters under state securities or Blue Sky laws) has been obtained or made
and is in full force and effect.
(xiv) The Company and each of the Subsidiaries holds all
material license, certificates and permits from governmental authorities which
are necessary to the conduct of their businesses; and neither the Company nor
any of the Subsidiaries has infringed any patents, patent rights, trade names,
trademarks or copyrights, which infringement is material to the business of the
Company and the Subsidiaries taken as a whole.
(xv) The Company and each of the Subsidiaries own, or are
licensed or otherwise have the full exclusive right to use all patents, patent
rights, trademarks, service marks, trade names, copyrights, mask work rights,
technology, licenses, inventions, trade secrets, know-how and other intellectual
property rights ("Intellectual Property") necessary to conduct the business now
or proposed to be conducted by the Company and each of the Subsidiaries as
described in the Prospectus, and, except as disclosed in the Prospectus, neither
the Company nor any of its Subsidiaries has received any notice of infringement
of or conflict with (or knows of such infringement of or conflict with) asserted
rights of others with respect to the Intellectual Property, and, except as
disclosed in the Prospectus and to the knowledge of the Company and each of its
Subsidiaries, do not in the conduct of their business as now or proposed to be
5
<PAGE>
conducted as described in the Prospectus, infringe or conflict with any
Intellectual Property of any third party, or any discovery, invention, product
or process which is the subject of a patent application filed by any thirty
party, known to the Company or any of the Subsidiaries.
(xvi) Neither the Company, nor to the Company's best knowledge,
any of its affiliates, has taken or may take, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of the shares of Common Stock to facilitate the sale or resale of the
Shares. The Company acknowledges that the Underwriters may engage in passive
market making transactions in the Shares on the Nasdaq National Market in
accordance with Regulation M under the Exchange Act of 1934, as amended (the
"Exchange Act").
(xvii) Neither the Company nor any Subsidiary is an "investment
company" within the meaning of such term under the Investment Company Act of
1940 and the rules and regulations of the Commission thereunder.
(xviii) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(xix) The Company and each of its Subsidiaries carry, or are
covered by, insurance in such amounts and covering such risks as is adequate for
the conduct of their respective businesses and the value of their respective
properties and as is customary for companies engaged in similar industries.
(xx) The Company is in compliance in all material respects
with all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for
which the Company would have any liability; the Company has not incurred and
does not expect to incur liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or
4971 of the Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and each "pension plan"
for which the Company would have any liability that is intended to be qualified
under Section 401(a) of the Code is so qualified in all material respects and
nothing has occurred, whether by action or by failure to act, which would cause
the loss of such qualification.
(xxi) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198,
An Act Relating to Disclosure of doing Business with Cuba, and the Company
- ---------------------------------------------------------
further agrees that if it commences
6
<PAGE>
engaging in business with the government of Cuba or with any person or affiliate
located in Cuba after the date the Registration Statement becomes or has become
effective with the Commission or with the Florida Department of Banking and
Finance (the "Department"), whichever date is later, or if the information
reported or incorporated by reference in the Prospectus, if any, concerning the
Company's business with Cuba or with any person or affiliate located in Cuba
changes in any material way, the Company will provide the Department notice of
such business or change, as appropriate, in a form acceptable to the Department.
(xxii) The Company and each of its Subsidiaries (i) are in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and conditions
of such permits, licenses or approvals would not, singly or in the aggregate,
have a material adverse effect on the Company and its Subsidiaries, taken as a
whole.
(xxiii) No material labor dispute with employees of the Company
or any of its Subsidiaries exists or to the knowledge of the Company is
imminent, and, without conducting any independent investigation, the Company is
not aware of any existing, threatened or imminent labor disturbance by the
employees of any of its principal suppliers, manufacturers or contractors that
could result in any material adverse change in the condition, financial or
otherwise, the earnings, the business or operations of the Company and its
Subsidiaries, taken as a whole.
(b) Each of the Selling Shareholders severally represents and
warrants as follows:
(i) Such Selling Shareholder now has and at the Closing
Date and the Option Closing Date, as the case may be (as such dates are
hereinafter defined) will have good and marketable title to the Firm Shares and
the Option Shares to be sold by such Selling Shareholder, free and clear of any
liens, encumbrances, equities and claims, and full right, power and authority to
effect the sale and delivery of such Firm Shares and Option Shares; and upon the
delivery of, against payment for, such Firm Shares and Option Shares pursuant to
this Agreement, the Underwriters will acquire good and marketable title thereto,
free and clear of any liens, encumbrances, equities and claims.
(ii) Such Selling Shareholder has full right, power and
authority to execute and deliver this Agreement, the Power of Attorney, and the
Custodian Agreement referred to below and to perform its obligations under such
Agreements. The execution and delivery of this Agreement and the consummation by
such Selling Shareholder of the transactions herein contemplated and the
fulfillment by such Selling Shareholder of the terms hereof will not require any
consent, approval, authorization, or other order of any court,
7
<PAGE>
regulatory body, administrative agency or other governmental body (except as may
be required under the Act, state securities laws or Blue Sky laws) and will not
result in a breach of any of the terms and provisions of, or constitute a
default under, organizational documents of such Selling Shareholder, if not an
individual, or any indenture, mortgage, deed of trust or other agreement or
instrument to which such Selling Shareholder is a party, or of any order, rule
or regulation applicable to such Selling Shareholder of any court or of any
regulatory body or administrative agency or other governmental body having
jurisdiction.
(iii) Such Selling Shareholder has not taken and will not
take, directly or indirectly, any action designed to, or which has constituted,
or which might reasonably be expected to cause or result in the stabilization or
manipulation of the price of the Common Stock of the Company and, other than as
permitted by the Act, the Selling Shareholder will not distribute any prospectus
or other offering material in connection with the offering of the Shares.
(iv) Without having undertaken to determine independently
the accuracy or completeness of either the representations and warranties of the
Company contained herein or the information contained in the Registration
Statement, such Selling Shareholder has no reason to believe that the
representations and warranties of the Company contained in this Section 1 are
not true and correct, is familiar with the Registration Statement and has no
knowledge of any material fact, condition or information not disclosed in the
Registration Statement which has adversely affected or may adversely affect the
business of the Company or any of the Subsidiaries; and the sale of the Firm
Shares and the Option Shares by such Selling Shareholder pursuant hereto is not
prompted by any information concerning the Company or any of the Subsidiaries
which is not set forth in the Registration Statement. The information pertaining
to such Selling Shareholder under the caption "Selling Shareholders" in the
Prospectus is complete and accurate in all material respects.
(v) Each of the Selling Shareholders listed on Schedule
III, severally and not jointly, represents, warrants and agrees that each of
them has reviewed the Registration Statement and Prospectus and during the
course of such review, no facts have come to such Selling Shareholder's
attention which leads such Selling Shareholder to believe that the Registration
Statement, at the time it became effective, contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, or that the
Prospectus, as of the date of the Prospectus, contains any untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
2. Purchase, Sale and Delivery of the Firm Shares.
----------------------------------------------
(a) On the basis of the representations, warranties and covenants
herein contained, and subject to the conditions herein set forth, the Sellers
agree to sell to the Underwriters and each Underwriter agrees, severally and not
jointly, to purchase, at a price of $_____ per share, the number of Firm Shares
set forth opposite the name of each Underwriter in
8
<PAGE>
Schedule I hereof, subject to adjustments in accordance with Section 9 hereof.
The number of Firm Shares to he purchased by each Underwriter from each Seller
shall be as nearly as practicable in the same proportion to the total number of
Firm Shares being sold by each Seller as the number of Firm Shares being
purchased by each Underwriter bears to the total number of Firm Shares to be
sold hereunder. The obligations of the Company and of each of the Selling
Shareholders shall be several and not joint.
(b) Certificates in negotiable form for the total number of the Shares
to be sold hereunder by the Selling Shareholders have been placed in custody
with _______________ as custodian (the "Custodian") pursuant to the Custodian
Agreement executed by each Selling Shareholder for delivery of all Firm Shares
and any Option Shares to be sold hereunder by the Selling Shareholders. Each of
the Selling Shareholders specifically agrees that the Firm Shares and any Option
Shares represented by the certificates held in custody for the Selling
Shareholders under the Custodian Agreement are subject to the interests of the
Underwriters hereunder, that the arrangements made by the Selling Shareholders
for such custody are to that extent irrevocable, and that the obligations of the
Selling Shareholders hereunder shall not be terminable by any act or deed of the
Selling Shareholders (or by any other person, firm or corporation including the
Company, the Custodian or the Underwriters) or by operation of law (including
the death of an individual Selling Shareholder or the dissolution of a corporate
Selling Shareholder) or by the occurrence of any other event or events, except
as set forth in the Custodian Agreement. If any such event should occur prior to
the delivery of the Underwriters of the Firm Shares or the Option Shares
hereunder, certificates for the Firm Shares or the Option Shares, as the case
may be, shall be delivered by the Custodian in accordance with the terms and
conditions of this Agreement as if such event has not occurred. The Custodian is
authorized to receive and acknowledge receipt of the proceeds of sale of the
Shares held by it against delivery of such Shares.
(c) Payment for the Firm Shares to be sold hereunder is to be made in
New York Clearing House funds by certified or bank cashier's checks drawn to the
order of the Company for the shares to be sold by it and to the order of
_____________, "as Custodian" for the shares to be sold by the Selling
Shareholders, in each case against delivery of certificates therefor to the
Representatives for the several accounts of the Underwriters. Such payment and
delivery are to be made at the offices of BT Alex. Brown Incorporated, 135 East
Baltimore Street, Baltimore, Maryland, at 10:00 a.m., Baltimore time, on the
third business day after the date of this Agreement or at such other time and
date not later than five business days thereafter as you and the Company shall
agree upon, such time and date being herein referred to as the "Closing Date."
(As used herein, "business day" means a day on which the New York Stock Exchange
is open for trading and on which banks in New York are open for business and not
permitted by law or executive order to be closed.) The certificates for the
Firm Shares will be delivered in such denominations and in such registrations as
the Representatives request in writing not later than the second full business
day prior to the Closing Date, and will be made available for inspection by the
Representatives at least one business day prior to the Closing Date.
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(d) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company [and [the] [certain] Selling Shareholders [listed on Schedule III
hereto]] hereby grant[s] an option to the several Underwriters to purchase the
Option Shares at the price per share as set forth in the first paragraph of this
Section 2. [The maximum number of Option Shares to be sold by the Company and
the Selling Shareholders is set forth opposite their respective names on
Schedule III hereto.] The option granted hereby may be exercised in whole or in
part by giving written notice (i) at any time before the Closing Date and (ii)
only once thereafter within 30 days after the date of this Agreement, by you, as
Representatives of the several Underwriters, to the Company, the Attorney-in-
fact, and the Custodian setting forth the number of Option Shares as to which
the several Underwriters are exercising the option, the names and denominations
in which the Option Shares are to be registered and the time and date at which
such certificates are to be delivered. [If the option granted hereby is
exercised in part, the respective number of Option Shares to be sold by the
Company and each of the Selling Shareholders listed in Schedule III hereto shall
be determined on a pro rata basis in accordance with the percentages set forth
opposite their names on Schedule II hereto, adjusted by you in such manner as to
avoid fractional shares.] The time and date at which certificates for Option
Shares are to be delivered shall be determined by the Representatives but shall
not be earlier than three nor later than 10 full business days after the
exercise of such option, nor in any event prior to the Closing Date (such time
and date being herein referred to as the "'Option Closing Date"). If the date
of exercise of the option is three or more days before the Closing Date, the
notice of exercise shall set the Closing Date as the Option Closing Date. The
number of Option Shares to be purchased by each Underwriter shall be in the same
proportion to the total number of Option Shares being purchased as the number of
Firm Shares being purchased by such Underwriter bears to the total number of
Firm Shares, adjusted by you in such manner as to avoid fractional shares. The
option with respect to the Option Shares granted hereunder may be exercised only
to cover over-allotments in the sale of the Firm Shares by the Underwriters.
You, as Representatives of the several Underwriters, may cancel such option at
any time prior to its expiration by giving written notice of such cancellation
to the Company and the Attorney-in-Fact. To the extent, if any, that the option
is exercised, payment for the Option Shares shall be made on the Option Closing
Date in New York Clearing House funds by certified or bank cashier's check drawn
to the order of the Company [for the Option Shares to be sold by it and to the
order of " , as Custodian" for the Option Share to be sold by the
Selling Shareholders] against delivery of certificates therefor at the offices
of BT Alex. Brown Incorporated, 135 East Baltimore Street, Baltimore, Maryland.
(e) If on the Closing Date or Option Closing Date, as the case may be,
any Selling Shareholder fails to sell the Firm Shares or Option Shares which
such Selling Shareholder has agreed to sell on such date as set forth in
Schedule II hereto, the Company agrees that it will sell or arrange for the sale
- -----------
of that number of shares of Common Stock to the Underwriters which represents
Firm Shares or the Option Shares which such Selling Shareholder has failed to so
sell, as set forth in Schedule II hereto, or such lesser number as may be
-----------
requested by the Representatives.
3. Offering by the Underwriters.
----------------------------
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It is understood that the several Underwriters are to make a public
offering of the Firm Shares as soon as the Representatives deem it advisable to
do so. The Firm Shares are to be initially offered to the public at the initial
public offering price set forth in the Prospectus. The Representatives may from
time to time thereafter change the public offering price and other selling
terms. To the extent, if at all, that any Option Shares are purchased pursuant
to Section 2 hereof, the Underwriters will offer them to the public on the
foregoing terms.
It is further understood that you will act as the Representatives for
the Underwriters in the offering and sale of the Shares in accordance with a
Master Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. Covenants of the Company and the Selling Shareholders.
-----------------------------------------------------
(a) The Company covenants and agrees with the several Underwriters
that:
(i) The Company will (A) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule 430A of
the Rules and Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form
approved by the Representatives containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A of
the Rules and Regulations and (B) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representatives shall not
previously have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or which is not in
compliance with the Rules and Regulations.
(ii) The Company will advise the Representatives promptly (A)
when the Registration Statement or any post-effective amendment thereto shall
have become effective, (B) of receipt of any comments from the Commission, (C)
of any request of the Commission for amendment of the Registration Statement or
for supplement to the Prospectus or for any additional information, and (D) of
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or the use of the Prospectus or of the institution of
any proceedings for that purpose. The Company will use its best efforts to
prevent the issuance of any such stop order preventing or suspending the use of
the Prospectus and to obtain as soon as possible the lifting thereof, if issued.
(iii) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of such
jurisdictions as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.
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<PAGE>
(iv) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order of, the Representatives during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representatives may
reasonably request. The Company will deliver to the Representatives at or
before the Closing Date, four signed copies of the Registration Statement and
all amendments thereto including all exhibits filed therewith, and will deliver
to the Representatives such number of copies of the Registration Statement
(including such number of copies of the exhibits filed therewith that may
reasonably be requested), and of all amendments thereto, as the Representatives
may reasonably request.
(v) The Company will comply with the Act and the Rules and
Regulations, and the Securities Exchange Act of 1934 (the "Exchange Act"), and
the rules and regulations of the Commission thereunder, so as to permit the
completion of the distribution of the shares as contemplated in this Agreement
and the Prospectus. If during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer, any event shall occur as a
result of which, in the judgment of the Company or in the reasonable opinion of
the Underwriters, it becomes necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances existing
at the time the Prospectus is delivered to a purchaser, not misleading, or, if
it is necessary at any time to amend or supplement the Prospectus to comply with
any law, the Company promptly will prepare and file with the Commission an
appropriate amendment to the Registration Statement or supplement to the
Prospectus so that the Prospectus as so amended or supplemented will not, in the
light of the circumstances when it is so delivered, be misleading, or so that
the Prospectus will comply with the law.
(vi) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event no later than
15 months after the effective date of the Registration Statement, an earning
statement (which need not be audited) in reasonable detail, covering a period of
at least 12 consecutive months beginning after the effective date of the
Registration Statement, which earning statement shall satisfy the requirements
of Section 11(a) of the Act and Rule 158 of the Rules and Regulations and will
advise you in writing when such statement has been so made available.
(vii) The Company will, for a period of five years from the
Closing Date, deliver to the Representatives copies of annual reports and copies
of all other documents, reports and information furnished by the Company to its
stockholders or filed with any securities exchange pursuant to the requirements
of such exchange or with the Commission pursuant to the Act or the Securities
Exchange Act of 1934, as amended. The Company will deliver to the
Representatives similar reports with respect to significant subsidiaries, as
that term is defined in the Rules and Regulations, which are not consolidated in
the Company's financial statements.
(viii) No offering, sale, short sale or other disposition of any
shares of Common Stock of the Company or other securities convertible into or
exchangeable or
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<PAGE>
exercisable for shares of Common Stock or derivative of Common Stock (or
agreement for such) will be made for a period of 180 days after the date of this
Agreement, directly or indirectly, by the Company otherwise than hereunder or
with the prior written consent of BT Alex. Brown Incorporated and the Company
will not consent to release any shareholder of the Company from any lock-up
agreement without the prior written consent of BT Alex. Brown Incorporated.
(ix) The Company will use its best efforts to list, subject to
notice of issuance, the Shares on the Nasdaq National Market.
(x) The Company has caused each officer and director and
specific shareholders of the Company to furnish to you, on or prior to the date
of this agreement, a letter or letters, in form and substance satisfactory to
the Underwriters, pursuant to which each such person shall agree not to offer,
sell, sell short or otherwise dispose of any shares of Common Stock of the
Company or other capital stock of the Company, or any other securities
convertible, exchangeable or exercisable for Common Shares or derivative of
Common Shares owned by such person or request the registration for the offer or
sale of any of the foregoing (or as to which such person has the right to direct
the disposition of) for a period of 180 days after the date of the final
Prospectus, directly or indirectly, except with the prior written consent of BT
Alex. Brown Incorporated ("Lockup Agreements").
(xi) The Company shall apply the net proceeds of its sale of
the Shares as set forth in the Prospectus and shall file such reports with the
Commission with respect to the sale of the Shares and the application of the
proceeds therefrom as may be required in accordance with Rule 463 under the Act.
(xii) The Company shall not invest, or otherwise use the
proceeds received by the Company from its sale of the Shares in such a manner as
would require the Company or any of the Subsidiaries to register as an
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act").
(xiii) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
for the Common Stock.
(xiv) The Company will not take, directly or indirectly, any
action designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any securities of the Company.
(b) Each of the Selling Shareholders covenants and agrees with the
several Underwriters that:
(i) No offering, sale, short sale or other disposition of any
shares of Common Stock of the Company or other capital stock of the Company or
other securities convertible, exchangeable or exercisable for Common Stock or
derivative of Common Stock owned by the Selling Shareholder or request the
registration for the offer or sale of any of the foregoing (or as to which the
Selling Shareholder has the right to direct the disposition of) will be made for
a period of 180 days after the date of the final Prospectus, directly or
indirectly, by such
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<PAGE>
Selling Shareholder otherwise than hereunder or with the prior written consent
of BT Alex. Brown Incorporated.
(ii) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal Responsibility
Act of 1982 and the Interest and Dividend Tax Compliance Act of 1983 with
respect to the transactions herein contemplated, each of the Selling
Shareholders agrees to deliver to you prior to or at the Closing Date a properly
completed and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department regulations in
lieu thereof).
(iii) Such Selling Shareholder will not take, directly or
indirectly, any action designed to cause or result in, or that has constituted
or might reasonably be expected to constitute, the stabilization or manipulation
of the price of any securities of the Company.
5. Costs and Expenses.
------------------
The Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Sellers under this Agreement, including,
without limiting the generality of the foregoing, the following: accounting
fees of the Company; the fees and disbursements of counsel for the Company and
the Selling Shareholders; the cost of printing and delivering to, or as
requested by, the Underwriters copies of the Registration Statement, Preliminary
Prospectuses, the Prospectus, this Agreement, the Underwriters' Selling
Memorandum, the Underwriters' Invitation Letter, the Listing Application, the
Blue Sky Survey and any supplements or amendments thereto; the filing fees of
the Commission; the filing fees and expenses (including legal fees and
disbursements) incident to securing any required review by the NASD of the terms
of the sale of the Shares; the Listing Fee of the Nasdaq National Market; and
the expenses, including the fees and disbursements of counsel for the
Underwriters, incurred in connection with the qualification of the Shares under
State securities or Blue Sky laws. To the extent, if at all, that any of the
Selling Shareholders engage special legal counsel to represent them in
connection with this offering, the fees and expenses of such counsel shall be
borne by such Selling Shareholder. Any transfer taxes imposed on the sale of
the Share to the several Underwriters will be paid by the Sellers pro rata. The
Company agrees to pay all costs and expenses of the Underwriters, including the
fees and disbursements of counsel for the Underwriters, incident to the offer
and sale of directed shares of the Common Stock by the Underwriters to employees
and persons having business relationships with the Company and its Subsidiaries.
The Company shall not, however, be required to pay for any of the Underwriters
expenses (other than those related to qualification under NASD regulation and
State securities or Blue Sky laws) except that, if this Agreement shall not be
consummated because the conditions in Section 6 hereof are not satisfied, or
because this Agreement is terminated by the Representatives pursuant to Section
11 hereof, or by reason of any failure, refusal or inability on the part of the
Company or the Selling Shareholders to perform any undertaking or satisfy any
condition of this Agreement or to comply with any of the terms hereof on their
part to be performed, unless such failure to satisfy said condition or to comply
with said terms be due to the default or omission of any Underwriter, then the
Company shall reimburse the several
14
<PAGE>
Underwriters for reasonable out-of-pocket expenses, including fees and
disbursements of counsel, reasonably incurred in connection with investigating,
marketing and proposing to market the Shares or in contemplation of performing
their obligations hereunder; but the Company and the Selling Shareholders shall
not in any event be liable to any of the several Underwriters for damages on
account of loss of anticipated profits from the sale by them of the Shares.
6. Conditions of Obligations of the Underwriters.
---------------------------------------------
The several obligations of the Underwriters to purchase the Firm
Shares on the Closing Date and the Option Shares, if any, on the Option Closing
Date are subject to the accuracy, as of the Closing Date or the Option Closing
Date, as the case may be, of the representations and warranties of the Company
and the Selling Shareholders contained herein, and to the performance by the
Company and the Selling Shareholders of their covenants and obligations
hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective amendments
thereto shall have become effective and any and all filings required by Rule 424
and Rule 430A of the Rules and Regulations shall have been made, and any request
of the Commission for additional information (to be included in the Registration
Statement or otherwise) shall have been disclosed to the Representatives and
complied with to their reasonable satisfaction. No stop order suspending the
effectiveness of the Registration Statement, as amended from time to time, shall
have been issued and no proceedings for that purpose shall have been taken or,
to the knowledge of the Company or the Selling Shareholders, shall be
contemplated by the Commission and no injunction, restraining order, or order of
any nature by a Federal or state court of competent jurisdiction shall have been
issued as of the Closing Date which would prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of Wilson Sonsini Goodrich
& Rosati, counsel for the Company and the Selling Shareholders, dated the
Closing Date or the Option Closing Date, as the case may be, addressed to the
Underwriters (and stating that it may be relied upon by counsel to the
Underwriters) to the effect that:
(i) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
California, with corporate power and authority to own or lease its properties
and conduct its business as described in the Registration Statement; each of the
Subsidiaries has been duly organized and is validly existing as a corporation in
good standing under the laws of the jurisdiction of its incorporation, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement; the Company and each of the
Subsidiaries are duly qualified to transact business in all jurisdictions in
which the conduct of their business requires such qualification, or in which the
failure to qualify would have a materially adverse effect upon the business of
the Company and the Subsidiaries taken as a whole; and the outstanding shares of
capital stock of each of the Subsidiaries have been duly authorized and validly
issued and are
15
<PAGE>
fully paid and non-assessable and are owned by the Company or a Subsidiary; and,
to the best of such counsel's knowledge, the outstanding shares of capital stock
of each of the Subsidiaries is owned free and clear of all liens, encumbrances
and equities and claims, and no options, warrants or other rights to purchase,
agreements or other obligations to issue or other rights to convert any
obligations into any shares of capital stock or of ownership interests in the
Subsidiaries are outstanding.
(ii) The Company has authorized and outstanding capital stock
as set forth under the caption "Capitalization" in the Prospectus; the
authorized shares of the Company's Common Stock have been duly authorized; the
outstanding shares of the Company's capital stock, including the Shares to be
sold by the Selling Shareholders, have been duly authorized and validly issued
and are fully paid and non-assessable; all of the Shares conform to the
description thereof contained in the Prospectus; the certificates for the
Shares, assuming they are in the form filed with the Commission, are in due and
proper form; the shares of Common Stock, including the Option Shares, if any, to
be sold by the Company pursuant to this Agreement have been duly authorized and
will be validly issued, fully paid and non-assessable when issued and paid for
as contemplated by this Agreement; and no preemptive rights of stockholders
exist with respect to any of the Shares or the issue or sale thereof.
(iii) Except as described in or contemplated by the Prospectus,
to the knowledge of such counsel, there are no outstanding securities of the
Company convertible or exchangeable into or evidencing the right to purchase or
subscribe for any shares of capital stock of the Company and there are no
outstanding or authorized options, warrants or rights of any character
obligating the Company to issue any shares of its capital stock or any
securities convertible or exchangeable into or evidencing the right to purchase
or subscribe for any shares of such stock; and except as described in the
Prospectus, to the knowledge of such counsel, no holder of any securities of the
Company or any other person has the right, contractual or otherwise, which has
not been satisfied or effectively waived, to cause the Company to sell or
otherwise issue to them, or to permit them to underwrite the sale of, any of the
Shares or the right to have any Common Shares or other securities of the Company
including in the Registration Statement or the right, as a result of the filing
of the Registration Statement, to require registration under the Act of any
shares of Common Stock or other securities of the Company.
(iv) The Registration Statement has become effective under the
Act and, to the best of the knowledge of such counsel, no stop order proceedings
with respect thereto have been instituted or are pending or threatened under the
Act.
(v) The Registration Statement, the Prospectus and each
amendment or supplement thereto comply as to form in all material respects with
the requirements of the Act and the applicable rules and regulations thereunder
(except that such counsel need express no opinion as to the financial statements
and related schedules therein).
(vi) The statements under the captions "Management--Stock
Plans," "Management--Profit Sharing/401(k) Plan," "Management--Limitation of
Liability and Indemnification Matters," "Certain Transactions," "Description of
Capital Stock" and "Shares
16
<PAGE>
Eligible for Future Sale" in the Prospectus, insofar as such statements
constitute a summary of documents referred to therein or matters of law, fairly
summarize in all material respects the information called for with respect to
such documents and matters.
(vii) Such counsel does not know of any contracts or documents
required to be filed as exhibits to the Registration Statement or described in
the Registration Statement or the Prospectus which are not so filed or described
as required, and such contracts and documents as are summarized in the
Registration Statement or the Prospectus are fairly summarized in all material
respects.
(viii) Such counsel knows of no material legal or governmental
proceedings pending or threatened against the Company or any of the Subsidiaries
except as set forth in the Prospectus.
(ix) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated do not and will not
conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, the Articles of Incorporation or By-laws of the
Company, or any agreement or instrument known to such counsel to which the
Company or any of the Subsidiaries is a party or by which the Company or any of
the Subsidiaries may be bound.
(x) This Agreement has been duly authorized, executed and
delivered by the Company.
(xi) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body is necessary in connection with the execution and delivery of
this Agreement and the consummation of the transactions herein contemplated
(other than as may be required by the NASD or as required by State securities
and Blue Sky laws as to which such counsel need express no opinion) except such
as have been obtained or made, specifying the same.
(xii) The Company is not, and will not become, as a result of
the consummation of the transactions contemplated by this Agreement, and
application of the net proceeds therefrom as described in the Prospectus,
required to register as an investment company under the 1940 Act.
(xiii) This Agreement has been duly authorized, executed and
delivered on behalf of the Selling Shareholders.
(xiv) Each Selling Shareholder has full legal right, power and
authority, and any approval required by law (other than as required by State
securities and Blue Sky laws as to which such counsel need express no opinion),
to sell, assign, transfer and deliver the portion of the Shares to be sold by
such Selling Shareholders.
(xv) The Custodian Agreement and the Power of Attorney executed
and delivered by each Selling Shareholder is valid and binding.
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<PAGE>
(xvi) The Underwriters (assuming that they are bona fide
purchasers within the meaning of the Uniform Commercial Code) have acquired good
and marketable title to the Shares being sold by each Selling Shareholder on the
Closing Date, and the Option Closing Date, as the case may be, free and clear of
all liens, encumbrances, equities and claims.
In addition to the matters set forth above, such opinion shall also
include a statement to the effect that nothing has come to the attention of such
counsel which leads them to believe that (i) the Registration Statement, at the
time it became effective under the Act (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under the Act) and as
of the Closing Date or the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and (ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements, in the light of the circumstances under which they are made, not
misleading (except that such counsel need express no view as to financial
statements and schedules therein). With respect to such statement, Wilson
Sonsini Goodrich & Rosati may state that their belief is based upon the
procedures set forth therein, but is without independent check and verification.
(c) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, the opinion of Blakely, Sokoloff,
Taylor & Zafman, intellectual property counsel for the Company, dated as of the
Closing Date or the Option Closing Date, as the case may be, addressed to the
Underwriters, to the effect that such counsel is familiar with the technology
used by the Company in its business and the manner of its use thereof and has
read the Registration Statement and the Prospectus, including particularly the
portions of the Registration Statement and the Prospectus referring to patents
and trade secrets, and
(i) Neither the Registration Statement nor the Prospectus,
including but not limited to "Risk Factors-Limited Intellectual Property
Protection" and "Business-Intellectual Property" (a) contains any untrue
statement of material fact with respect to (1) patents, patent rights, trade
secrets, trademarks, service marks or other proprietary information owned or
used by the Company, or the manner of its use thereof, or (2) any allegation on
the part of any person that the Company is infringing any patent rights, trade
secrets, trademarks services marks or other proprietary information of any such
person or (b) omits to state any material fact relating to (1) patents, trade
secrets, trademarks, service marks or other proprietary information or materials
owned or used by the Company, or the manner of its use thereof or (2) any
allegation on the part of any person that the Company is infringing on any
patent rights, trade secrets, trademarks, service marks or other proprietary
information or materials of any such person that is necessary to make the
statements therein not misleading;
(ii) Except as stated in the Registration Statement or
Prospectus, there are no legal or governmental proceedings pending relating to
patent rights, trade secrets,
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<PAGE>
trademarks, service marks or other proprietary information of the Company, and
no such proceedings are threatened or contemplated by governmental authorities
or others;
(iii) Except as stated in the Registration Statement or
Prospectus, to its knowledge, the Company is not infringing or otherwise
violating any patents, trade secrets, trademarks, service marks or other
proprietary information of others; and
(iv) To its knowledge, the Company owns or possesses sufficient
rights to use all patents, trade secrets, trademarks, service marks or other
proprietary information as described in the Prospectus.
(d) The Representatives shall have received from Gunderson Dettmer
Stough Villeneuve Franklin & Hachigian, LLP, counsel for the Underwriters, an
opinion dated the Closing Date or the Option Closing Date, as the case may be,
substantially to the effect specified in subparagraphs ___________________ of
Paragraph (b) of this Section 6, and that the Company is a duly organized and
validly existing corporation under the laws of the State of California. In
rendering such opinion Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP may rely as to all matters governed other than by the laws of the State of
California or Federal laws on the opinion of counsel referred to in Paragraph
(b) of this Section 6. In addition to the matters set forth above, such opinion
shall also include a statement to the effect that nothing has come to the
attention of such counsel which leads them to believe that (i) the Registration
Statement, or any amendment thereto, as of the time it became effective under
the Act (but after giving effect to any modifications incorporated therein
pursuant to Rule 430A under the Act) as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and (ii) the
Prospectus, or any supplement thereto, on the date it was filed pursuant to the
Rules and Regulations and as of the Closing Date or the Option Closing Date, as
the case may be, contained an untrue statement of a material fact or omitted to
state a material fact, necessary in order to make the statements, in the light
of the circumstances under which they are made, not misleading (except that such
counsel need express no view as to financial statements, schedules and
statistical information therein). With respect to such statement, Gunderson
Dettmer Stough Villeneuve Franklin & Hachigian, LLP may state that their belief
is based upon the procedures set forth therein, but is without independent check
and verification.
(e) The Representatives shall have received at or prior to the
Closing Date from Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP
a memorandum or summary, in form and substance satisfactory to the
Representatives, with respect to the qualification for offering and sale by the
Underwriters of the Shares under the State securities or Blue Sky laws of such
jurisdictions as the Representatives may reasonably have designated to the
Company.
(f) You shall have received, on each of the dates hereon, the Closing
Date and the Option Closing Date, as the case may be, a letter dated the date
hereof, the Closing Date or the Option Closing Date, as the case may be, in form
and substance satisfactory to you, of
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Deloitte & Touche confirming that they are independent public accountants within
the meaning of the Act and the applicable published Rules and Regulations
thereunder and stating that in their opinion the financial statements and
schedules examined by them and included in the Registration Statement comply in
form in all material respects with the applicable accounting requirements of the
Act and the related published Rules and Regulations; and containing such other
statements and information as is ordinarily included in accountants' "comfort
letters" to Underwriters with respect to the financial statements and certain
financial and statistical information contained in the Registration Statement
and Prospectus.
(g) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, a certificate or certificates of the
Chief Executive Officer and the Chief Financial Officer of the Company to the
effect that, as of the Closing Date or the Option Closing Date, as the case may
be, each of them severally represents as follows:
(i) The Registration Statement has become effective under the
Act and no stop order suspending the effectiveness of the Registration Statement
has been issued, and no proceedings for such purpose have been taken or are, to
his knowledge, contemplated by the Commission;
(ii) The representations and warranties of the Company contained
in Section 1 hereof are true and correct as of the Closing Date or the Option
Closing Date, as the case may be;
(iii) All filings required to have been made pursuant to Rules
424 or 430A under the Act have been made;
(iv) He has carefully examined the Registration Statement and
the Prospectus and, in his opinion, as of the effective date of the Registration
Statement, the statements contained in the Registration Statement were true and
correct, and such Registration Statement and Prospectus did not omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, and since the effective date of the
Registration Statement, no event has occurred which should have been set forth
in a supplement to or an amendment of the Prospectus which has not been so set
forth in such supplement or amendment; and
(v) Since the respective dates as of which information is given
in the Registration Statement and Prospectus, there has not been any material
adverse change or any development involving a prospective material adverse
change in or affecting the condition, financial or otherwise, of the Company and
its Subsidiaries taken as a whole or the earnings, business, management,
properties, assets, rights, operations, condition (financial or otherwise) or
prospects of the Company and the Subsidiaries taken as a whole, whether or not
arising in the ordinary course of business.
(h) The Company and the Selling Shareholders shall have furnished to
the Representatives such further certificates and documents confirming the
representations and
20
<PAGE>
warranties, covenants and conditions contained herein and related matters as the
Representatives may reasonably have requested.
(i) The Firm Shares and Option Shares, if any, have been approved for
designation upon notice of issuance on the Nasdaq National Market.
(j) The Lockup Agreements described in Section 4(x) are in full force
and effect.
The opinions and certificates mentioned in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in all
material respects satisfactory to the Representatives and to Gunderson Dettmer
Stough Villeneuve Franklin & Hachigian, LLP, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Representatives by notifying the Company and the Selling Shareholders of
such termination in writing or by telegram at or prior to the Closing Date or
the Option Closing Date, as the case may be.
In such event, the Selling Shareholders, the Company and the
Underwriters shall not be under any obligation to each other (except to the
extent provided in Sections 5 and 8 hereof).
7. Conditions of the Obligations of the Sellers.
--------------------------------------------
(a) The obligations of the Sellers to sell and deliver the portion of
the Shares required to be delivered as and when specified in this Agreement are
subject to the conditions that at the Closing Date or the Option Closing Date,
as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
8. Indemnification.
---------------
(a) The Company and the Selling Shareholders, jointly and severally,
agree to indemnify and hold harmless each Underwriter and each person, if any,
who controls any Underwriter within the meaning of the Act, against any losses,
claims, damages or liabilities to which such Underwriter or any such controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or (ii) the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; and will reimburse each Underwriter and each such controlling person
upon demand for any legal or other expenses reasonably incurred by such
Underwriter or such controlling person in connection with investigating or
defending any such
21
<PAGE>
loss, claim, damage or liability, action or proceeding or in responding to a
subpoena or governmental inquiry related to the offering of the Shares, whether
or not such Underwriter or controlling person is a party to any action or
proceeding; provided, however, that the Company and the Selling Shareholders
will not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement, or omission or alleged omission made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which the Company or the Selling Shareholders
may otherwise have.
(b) Each Underwriter severally and not jointly will indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement, the Selling Shareholders, and each person, if
any, who controls the Company or the Selling Shareholders within the meaning of
the Act, against any losses, claims, damages or liabilities to which the Company
or any such director, officer, Selling Shareholder or controlling person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) arise out
of or are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto, or (ii) the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made; and will reimburse any
legal or other expenses reasonably incurred by the Company or any such director,
officer, Selling Shareholder or controlling person in connection with
investigating or defending any such loss, claim, damage, liability, action or
proceeding; provided, however, that each Underwriter will be liable in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission has been made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Section 8, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing. No indemnification provided for in Section
8(a) or (b) shall be available to any party who shall fail to give notice as
provided in this Section 8(c) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
materially prejudiced by the failure to give such notice, but the failure to
give such notice shall not relieve the indemnifying party or parties from any
liability which it or they may have to the indemnified party for contribution or
otherwise than on account of the provisions of Section 8(a) or (b). In case any
such proceeding shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the
22
<PAGE>
extent that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party and shall pay as incurred the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel at its own expense.
Notwithstanding the foregoing, the indemnifying party shall pay as incurred (or
within 30 days of presentation) the fees and expenses of the counsel retained by
the indemnified party in the event (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such counsel,
(ii) the named parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and representation
of both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them or (iii) the indemnifying party shall
have failed to assume the defense and employ counsel acceptable to the
indemnified party within a reasonable period of time after notice of
commencement of the action. It is understood that the indemnifying party shall
not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm for all such indemnified parties. Such firm shall be designated in
writing by you in the case of parties indemnified pursuant to Section 8(a) and
by the Company and the Selling Shareholders in the case of parties indemnified
pursuant to Section 8(b). The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent but if settled
with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment. In addition, the
indemnifying party will not, without the prior written consent of the
indemnified party, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified party is
an actual or potential party to such claim action or proceeding) unless such
settlement, compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such claim, action or
proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company and the
Selling Shareholders on the one hand and the Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law then each indemnifying
party shall contribute to such amount paid or payable by such indemnified party
in such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the Company and the Selling Shareholders on the
one hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities, (or
actions or proceedings in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Selling Shareholders on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company and the Selling
23
<PAGE>
Shareholders bear to the total underwriting discounts and commissions received
by the Underwriters, in each case as set forth in the table on the cover page of
the Prospectus. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company or the Selling Shareholders on the one hand
or the Underwriters on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company, the Selling Shareholders and the Underwriters agree that
it would not be just and equitable if contributions pursuant to this Section
8(d) were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above in
this Section 8(d). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions or proceedings
in respect thereof) referred to above in this Section 8(d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), (i) no Underwriter shall
be required to contribute any amount in excess of the underwriting discounts and
commissions applicable to the Shares purchased by such Underwriter, (ii) no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation, and (iii) no Selling Shareholder
shall be required to contribute any amount in excess of the proceeds received by
such Selling Shareholder from the Underwriters in the offering. The
Underwriters' obligations in this Section 8(d) to contribute are several in
proportion to their respective underwriting obligations and not joint.
(e) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.
(f) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any persons
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be
24
<PAGE>
entitled to the benefits of the indemnity, contribution and reimbursement
agreements contained in this Section 8.
9. Default By Underwriters.
-----------------------
If on the Closing Date or the Option Closing Date, as the case may be,
any Underwriter shall fail to purchase and pay for the portion of the Shares
which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company or a Selling
Shareholder), you, as Representatives of the Underwriters, shall use your
reasonable efforts to procure within 36 hours thereafter one or more of the
other Underwriters, or any others, to purchase from the Company and the Selling
Shareholders such amounts as may be agreed upon and upon the terms set forth
herein, the Firm Shares or Option Shares, as the case may be, which the
defaulting Underwriter or Underwriters failed to purchase. If during such 36
hours you, as such Representatives, shall not have procured such other
Underwriters, or any others, to purchase the Firm Shares or Option Shares, as
the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of shares with respect to which
such default shall occur does not exceed 10% of the Firm Shares or Option
Shares, as the case may be, covered hereby, the other Underwriters shall be
obligated, severally, in proportion to the respective numbers of Firm Shares or
Option Shares, as the case may be, which they are obligated to purchase
hereunder, to purchase the Firm Shares or Option Shares, as the case may be,
which such defaulting Underwriter or Underwriters failed to purchase, or (b) if
the aggregate number of shares of Firm Shares or Option Shares, as the case may
be, with respect to which such default shall occur exceeds 10% of the Firm
Shares or Option Shares, as the case may be, covered hereby, the Company and the
Selling Shareholders or you as the Representatives of the Underwriters will have
the right, by written notice given within the next 36-hour period to the parties
to this Agreement, to terminate this Agreement without liability on the part of
the non-defaulting Underwriters or of the Company or of the Selling Shareholders
except to the extent provided in Section 8 hereof. In the event of a default by
any Underwriter or Underwriters, as set forth in this Section 9, the Closing
Date or Option Closing date, as the case may be, may be postponed for such
period, not exceeding seven days, as you, as Representatives, may determine in
order that the required changes in the Registration Statement or in the
Prospectus or in any other documents or arrangements may be effected. The term
"Underwriter" includes any person substituted for a defaulting Underwriter. Any
action taken under this Section 9 shall not relieve any defaulting Underwriter
from liability in respect of any default of such Underwriter under this
Agreement.
10. Notices.
-------
All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, telecopied or telegraphed
and confirmed as follows: if to the Underwriters, to BT Alex. Brown
Incorporated, One South Street, Baltimore, Maryland 21202, Attention:
________________; with a copy to BT Alex. Brown Incorporated, 135 East Baltimore
Street, Baltimore, Maryland 21202, Attention: General Counsel; if to the
Company or the Selling Shareholders, to Insync Systems, Inc., 1463 Centre Point
Drive, Milpitas, California 95035.
25
<PAGE>
11. Termination.
-----------
This Agreement may be terminated by you by notice to the Sellers as
follows:
(a) at any time prior to the earlier of (i) the time the Shares are
released by you for sale by notice to the Underwriters, or (ii) 11:30 a.m. on
the first business day following the date of this Agreement;
(b) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in
the Registration Statement and the Prospectus, any material adverse change or
any development involving a prospective material adverse change in or affecting
the condition, financial or otherwise, of the Company and its Subsidiaries taken
as a whole or the earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the Company and
its Subsidiaries taken as a whole, whether or not arising in the ordinary course
of business, (ii) any outbreak or escalation of hostilities or declaration of
war or national emergency or other national or international calamity or crisis
or change in economic or political conditions if the effect of such outbreak,
escalation, declaration, emergency, calamity, crisis or change on the financial
markets of the United States would, in your reasonable judgment, make it
impracticable to market the Shares or to enforce contracts for the sale of the
Shares, or (iii) suspension of trading in securities generally on the New York
Stock Exchange or the American Stock Exchange or limitation on prices (other
than limitations on hours or numbers of days of trading) for securities on
either such Exchange, (iv) the enactment, publication, decree or other
promulgation of any statute, regulation, rule or order of any court or other
governmental authority which in your opinion materially and adversely affects or
may materially and adversely affect the business or operations of the Company,
(v) declaration of a banking moratorium by United States or New York State
authorities, (vi) any downgrading in the rating of the Company's debt securities
by any "nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) under the Exchange Act); (vii) the suspension of trading
of the Company's common stock by the Commission on the Nasdaq National Market or
(viii) the taking of any action by any governmental body or agency in respect of
its monetary or fiscal affairs which in your reasonable opinion has a material
adverse effect on the securities markets in the United States; or
(c) as provided in Sections 6 and 9 of this Agreement.
12. Successors.
----------
This Agreement has been and is made solely for the benefit of the
Underwriters, the Company and the Selling Shareholders and their respective
successors, executors, administrators, heirs and assigns, and the officers,
directors and controlling persons referred to herein, and no other person will
have any right or obligation hereunder. No purchaser of any of the Shares from
any Underwriter shall be deemed a successor or assign merely because of such
purchase.
26
<PAGE>
13. Information Provided By Underwriters.
------------------------------------
The Company, the Selling Shareholders and the Underwriters acknowledge
and agree that the only information furnished or to be furnished by any
Underwriter to the Company for inclusion in any Prospectus or the Registration
Statement consists of the information set forth in the last paragraph on the
front cover page (insofar as such information relates to the Underwriters),
legends required by Item 502(d) of Regulation S-K under the Act and the
information under the caption "Underwriting" in the Prospectus.
27
<PAGE>
14. Miscellaneous
-------------
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants in
this Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its directors or officers and (c) delivery of and payment for the Shares under
this Agreement.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Maryland.
If the foregoing letter is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Selling Shareholders, the
Company and the several Underwriters in accordance with its terms.
28
<PAGE>
Any person executing and delivering this Agreement as Attorney-in-Fact
for a Selling Shareholder represents by so doing that he has been duly appointed
as Attorney-in-Fact by such Selling Shareholder pursuant to a validly existing
and binding Power of Attorney which authorizes such Attorney-in-Fact to take
such action.
Very truly yours,
INSYNC SYSTEMS, INC.
By________________________________________________
Stanley L. Leopard,
Chief Executive Officer
Selling Shareholders listed on Schedule II
By________________________________________________
Attorney-in-Fact]
The foregoing Underwriting Agreement is hereby
confirmed and accepted as of the date first above written.
BT ALEX. BROWN INCORPORATED
PAINE WEBBER, INC.
PRUDENTIAL SECURITIES, INC.
As Representatives of the several
Underwriters listed on Schedule I
By: BT Alex. Brown Incorporated
By: _______________________________
Authorized Officer
29
<PAGE>
SCHEDULE I
SCHEDULE OF UNDERWRITERS
<TABLE>
<CAPTION>
Underwriter Number of Firm Shares to be Purchased
----------- -------------------------------------
<S> <C>
BT Alex. Brown Incorporated
Paine Webber, Inc.
Prudential Securities, Inc.
_____________
Total _____________
</TABLE>
<PAGE>
SCHEDULE II
SCHEDULE OF SELLING SHAREHOLDERS
<TABLE>
<CAPTION>
Selling Shareholder Number of Firm Shares to be Sold
------------------- --------------------------------
<S> <C>
_____________
Total _____________
</TABLE>
<PAGE>
SCHEDULE III
SELLING SHAREHOLDERS PROVIDING
A REPRESENTATION UNDER SECTION 1(b)(v)
<PAGE>
EXHIBIT 3.01
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
INSYNC SYSTEMS, INC.
--------------------
The undersigned, STANLEY L. LEOPARD and TERENCE J. GRIFFIN certify
that:
1. They are the Chief Executive Officer and Secretary, respectively,
of Insync Systems, Inc., a California corporation (the "Corporation").
2. The Amended and Restated Articles of Incorporation of this
Corporation are amended and restated as follows:
ARTICLE I
The name of this Corporation is Insync Systems, Inc.
ARTICLE II
The purpose of this Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
This Corporation is authorized to issue two classes of stock to be
designated, respectively, the "Preferred Stock" and the "Common Stock". The
total number of shares which this Corporation is authorized to issue is fifty-
three million (53,000,000) shares. Fifty million (50,000,000) shares shall be
common stock, par value $.01 per share (the "Common Stock"), and three million
(3,000,000) shares shall be Preferred Stock, par value $.01 per share (the
"Preferred Stock").
ARTICLE IV
All three million (3,000,000) shares of Preferred Stock are hereby
designated as "Series A Preferred Stock" (the "Series A Preferred Stock") with
the rights, preferences and privileges specified herein.
The rights, preferences, privileges, restrictions and other matters
relating to the Series A Preferred Stock are as follows:
<PAGE>
1. Dividends.
---------
(a) The holders of shares of Series A Preferred Stock shall be
entitled to receive dividends, out of any assets legally available therefor,
prior and in preference to any declaration or payment of any dividend (payable
other than in shares of Common Stock or other securities and rights convertible
into or entitling the holder thereof to receive, directly or indirectly,
additional shares of Common Stock of this Corporation) on the Common Stock of
this Corporation, cash dividends at the annual rate of $0.48 per share, payable
if when and as declared by the board of directors. Such dividends shall not be
cumulative.
(b) After dividends on the Series A Preferred Stock shall have
been declared and paid or set apart, if the board of directors shall elect to
declare additional dividends out of funds legally available therefor, such
additional dividends shall be declared in equal amounts per share on all shares
of Series A Preferred Stock and Common Stock.
2. Liquidation Preference.
----------------------
(a) (i) For the purposes of this Section 2(a), the following
definitions shall apply:
(1) "Common Share Purchase Price" means $3.00 per
share (subject to adjustment for splits, dividends, combinations,
reclassifications, and the like);
(2) "Distributable Assets" means the aggregate dollar
value of all assets available for distribution upon a Liquidation;
(3) "Distributable Assets per Share" means the number
calculated by dividing the Distributable Assets by the Total Shares;
(4) "PCT" means the number calculated by dividing $24
minus Distributable Assets per Share by $8.00;
(5) "Series A Purchase Price" means $8.00 per share
(subject to adjustment for splits, dividends, combinations, reclassifications
and the like);
(6) "Total Shares" means the sum of the number of
actually issued and outstanding shares of Common Stock and the number of shares
of Common Stock issuable upon the conversion of all actually issued and
outstanding shares of preferred stock including all shares of Series A Preferred
Stock as of the record date fixed by the Board of Directors in connection with
such Liquidation.
2.
<PAGE>
(ii) In the event of any voluntary or involuntary liquidation,
dissolution or winding up ("Liquidation") of the Corporation, the holders of
shares of Series A Preferred Stock then outstanding shall be entitled to be
paid, out of the assets of the Corporation available for distribution to its
shareholders, before any payment shall be made in respect of the Corporation's
Common Stock, an amount per share equal to all declared and unpaid dividends
thereon, if any, to the date fixed for distribution, plus a preference amount
determined according to the following table:
Distributable Preference per Share of
Assets per Share Series A Preferred Stock
---------------- ------------------------
Less than $16 Series A Purchase Price
Greater than or equal
to $16, but less than
or equal to $24 PCT x Series A Purchase Price
Greater than $24 $0
If, upon any Liquidation of the Corporation, the assets of the
Corporation available for distribution to its shareholders shall be insufficient
to pay the holders of the Series A Preferred Stock the full amounts to which
they shall be entitled, all assets of the Corporation available for distribution
shall be distributed ratably to the holders of the Series A Preferred Stock.
(iii) In the event that the quotient obtained by dividing (a)
the difference between (1) the Distributable Assets and (2) the aggregate
preferential amount, if any, due the holders of Series A Preferred Stock as set
forth in Section 2(a)(ii) above (the "Aggregate Series A Preference Amount") by
(b) the number of actually issued and outstanding shares of Common Stock (the
"Total Common Shares") is less than or equal to the Common Share Purchase Price,
after setting apart or paying in full the preferential amounts, if any, due the
holders of Series A Preferred Stock as set forth in Section 2(a)(ii) above, the
remaining assets of the Corporation available for distribution to shareholders,
if any, shall be distributed to the holders of Common Stock, each such actually
issued and outstanding share of Common Stock entitling the holder thereof to
receive an equal portion of such remaining assets.
(iv) In the event that the quotient obtained by dividing (a)
the difference between (1) the Distributable Assets and (2) the Aggregate Series
A Preference Amount by (b) the Total Common Shares is greater than the Common
Share Purchase Price, after setting apart and paying in full the preferential
amounts, if any, due the holders of Series A Preferred Stock as set forth in
Section 2(a)(ii) above the remaining assets of the Corporation available for
distribution to shareholders, if any, shall be distributed to the holders of
Series A Preferred Stock and Common Stock, with
3.
<PAGE>
the amount of such distribution for each share of Series A Preferred Stock being
equal to the amount of such distribution for each share of Common Stock (each
such issued and outstanding share of Common Stock entitling the holder thereof
to receive an equal portion of such remaining assets) multiplied by the number
of shares of Common Stock into which such share of Series A Preferred Stock is
convertible as of the date fixed for such distribution, subject to completion of
the following distributions before such participating distribution:
(x) first, each holder of a share of Common Stock shall
have received, pursuant to this Section 2(a)(iv), an amount equal to the Common
Share Purchase Price before any holder of Series A Preferred Stock shall be
entitled to participate in any pro rata distribution pursuant to this Section
2(a)(iv); and
(y) second, after such payment has been made pursuant to
subparagraph (iv) (x) immediately above, each holder of Series A Preferred Stock
shall have received, pursuant to this Section 2(a)(iv), an amount equal to the
Common Share Purchase Price before any holder of Common Stock shall be entitled
to participate further in any pro rata distribution pursuant to this Section
2(a)(iv).
(b) A consolidation or merger of this Corporation or an
affiliated corporation with or into any other corporation or corporations, a
sale of all or substantially all of the assets of this Corporation in one or
more related transactions, or the effectuation by this Corporation of a
transaction or series of related transactions whereby, in each case, more than
50% of the voting power of this Corporation is disposed of (excluding a
reincorporation merger) (collectively, an "Acquisition Transaction") may, upon
the election of holders of a majority of the outstanding shares of Series A
Preferred Stock in writing to this Corporation, be treated as a Liquidation for
purposes of this Section 2.
(c) In the event this Corporation shall propose to take any
action of the type described in subsection (a) or (b) of this Section 2, this
Corporation shall, within ten (10) days after the date the board of directors
approves such action or twenty (20) days prior to any shareholders' meeting
called to approve such action, whichever is earlier, give each holder of shares
of the Series A Preferred Stock written notice of the proposed action. Such
written notice shall describe the material terms and conditions of such proposed
action, including a description of the stock, cash and property to be received
by the holders of shares of the Series A Preferred Stock upon consummation of
the proposed action and the proposed date of delivery thereof. If any material
change in the facts set forth in the notice shall occur, this Corporation shall
promptly give written notice to each holder of shares of the Series A Preferred
Stock of such material change.
4.
<PAGE>
(d) This Corporation shall not consummate any proposed action of
the type described in subsection (a) or (b) of this Section 2 before the
expiration of thirty (30) days after the mailing of the initial written notice
or ten (10) days after the mailing of any subsequent written notice, whichever
is later; provided, however, that any such 30-day or 10-day period may be
shortened upon the written consent of the holders of a majority of the
outstanding shares of the Series A Preferred Stock.
(e) If this Corporation shall propose to take any action of the
type described in subsection (a) or (b) of this Section 2 which will involve the
distribution of assets or properties other than cash, this Corporation shall
promptly engage, at its expense, independent competent appraisers whose findings
must be acceptable to the Series A Director Designee (as defined herein) to
determine the value of the assets or properties to be distributed to the holders
of shares of the Series A Preferred Stock and the Common Stock. This Corporation
shall, upon receipt of such appraiser's valuation, give prompt written notice of
the appraiser's valuation to each holder of shares of the Series A Preferred
Stock.
3. Redemption.
----------
(a) (i) Subject to the terms and conditions of this Section
3, to the extent that any outstanding shares of Series A Preferred Stock have
not been redeemed and that any outstanding shares of Series A Preferred Stock
have not been converted into Common Stock prior to the fifth anniversary of the
date on which this Corporation first issues shares of Series A Preferred Stock
(the "Original Issue Date"), this Corporation shall, solely at the option of the
holders of at least a majority of the shares of Series A Preferred Stock, upon
receiving, at any time prior to the fifth anniversary of the Original Issue
Date, a written request for the redemption of Series A Preferred Stock signed by
holders owning a majority of the then outstanding shares of Series A Preferred
Stock, redeem in cash at the Redemption Price (as defined below) on the fifth
anniversary of the Original Issue Date a number of shares of Series A Preferred
Stock equal to 50% of such shares that are outstanding on such date and on the
sixth anniversary of the Original Issue Date the remaining number of shares of
Series A Preferred Stock that are outstanding on such date, resulting in the
redemption or conversion to Common Stock as provided in Section 5 of all
outstanding shares of Series A Preferred Stock.
(ii) Upon the receipt of a written redemption request
referenced in Section 3(a)(i) above, this Corporation shall give written notice
by mail, postage prepaid, to the holders of the Series A Preferred Stock then
outstanding to be redeemed that all shares of Series A Preferred Stock will be
redeemed on such redemption dates as specified in subsection 3(a) for a cash
price equal to $8.00 per share (adjusted for any dividends, subdivisions,
combinations or reclassifications and the like with respect to such shares) plus
an amount equal to any declared but unpaid dividends on each such share of
Series A Preferred Stock (the "Redemption Price"). The notice
5.
<PAGE>
shall further call upon each such holder to surrender to this Corporation on or
before such redemption date at the place designated in the notice such holder's
certificate or certificates representing such holder's pro rata portion of the
shares to be redeemed and shall state that, in lieu of redemption, a holder may,
prior to either such redemption date, convert its Series A Preferred Stock into
Common Stock in accordance with Section 5 below. On or after such redemption
date, each holder of shares of Series A Preferred Stock called for redemption
shall surrender the certificate evidencing such shares to this Corporation,
except that such number of shares shall be reduced by the number of shares which
have been converted into Common Stock between the date of the written redemption
request and such redemption date, at the place designated in such notice and
shall thereupon be entitled to receive payment of the Redemption Price.
(b) From and after the relevant redemption date, unless there
shall have been a default in payment of the appropriate redemption price, all
rights of the holders with respect to such redeemed shares of Series A Preferred
Stock (except the right to receive on the Closing Date the Redemption Price with
interest upon surrender of the stock certificates) shall cease and such shares
shall not thereafter be transferred on the books of this Corporation or be
deemed to be outstanding for any purpose whatsoever.
(c) If the funds of this Corporation legally available for
redemption of shares of Series A Preferred Stock on the relevant redemption date
are insufficient to redeem the total number of shares of Series A Preferred
Stock to be redeemed on such date, this Corporation shall use those funds which
are legally available to redeem in cash the maximum possible number of such
shares ratably among the holders of such shares to be redeemed. The shares of
Series A Preferred Stock not redeemed shall remain outstanding and shall be
entitled to all the rights and preferences provided herein. At any time
thereafter when additional funds of this Corporation are legally available for
the redemption of shares of Series A Preferred Stock, such funds will
immediately be used to redeem the balance of the shares which this Corporation
has become obligated to redeem on the relevant redemption date but which it has
not redeemed.
(d) Although this Corporation and the holders of the Series A
Preferred Stock expect this Corporation will have sufficient funds to effect
each such redemption, if this Corporation lacks legally sufficient funds and
assets at the time of request to effect the timely redemption of the shares of
Series A Preferred Stock that are subject to redemption, then this Corporation
shall pay, on each six-month anniversary following the first applicable
redemption date and each subsequent six-month anniversary date until the overdue
redemption payment is made in full, a dividend on the aggregate overdue
redemption payment in an amount equal to the product of the aggregate overdue
redemption payment from time to time outstanding during the six months preceding
such six-month anniversary and the greater of 12% or 5% over the "reference
6.
<PAGE>
rate" of the Bank of America, NT & SA, from time to time in effect ("Prime
Rate"), but in no event at a rate higher than that permitted by applicable law.
(e) On or prior to the first redemption date, this Corporation
shall deposit with a bank or trust company in San Francisco, California having a
capital and surplus of at least $100,000,000, as a trust fund, a sum equal to
the aggregate Redemption Price for all shares of Series A Preferred Stock called
for redemption and not yet redeemed, with irrevocable instructions and authority
to the bank or trust company to pay, on or after the redemption date, the
Redemption Price to the holders upon the surrender of their share certificates.
From and after the date of such deposit, the shares so called for redemption
shall be redeemed. The deposit shall constitute full payment of the shares to
their holders, and from and after the date of the deposit, the shares shall be
deemed to be no longer outstanding, all dividends with respect to such shares
shall cease to accrue and the holders thereof shall cease to be shareholders
with respect to such shares and shall have no rights with respect thereto except
the right to receive from the bank or trust company payment of the Redemption
Price of the shares, without interest, upon surrender of their certificates
therefor, and the right to convert such shares as provided for herein.
4. Voting Rights.
-------------
(a) For so long as at least 250,000 shares of Series A Preferred
Stock remain outstanding, the holders of Series A Preferred Stock, voting as a
separate class, shall be entitled to elect one director. Such director shall be
the candidate receiving the highest number of affirmative votes of the
outstanding shares of Series A Preferred Stock (the "Series A Director
Designee") with votes cast against such candidate and votes withheld having no
legal effect. The election of a director by the Series A Preferred Stock shall
occur at the annual meeting of holders of capital stock or at any special
meeting of holders of Series A Preferred Stock called by holders of a majority
of the outstanding shares of Series A Preferred Stock or by the written consent
of all such holders. If the person elected by the holders of Series A Preferred
Stock should cease to be a director for any reason, the vacancy shall only be
filled by the vote or written consent of holders of a majority of the
outstanding shares of Series A Preferred Stock. The holder of each share of the
Series A Preferred Stock shall be entitled to the number of votes equal to the
number of shares of Common Stock into which such share of such series of Series
A Preferred Stock could be converted on the record date for the vote or consent
of shareholders and shall vote with holders of the Common Stock upon any matter
submitted to a vote of shareholders, except for the election of directors and
those matters required by law to be submitted to a class vote or pursuant to the
protective provisions set forth herein. The right of the holders of Series A
Preferred Stock to vote, as a separate class, to elect the Series A Director
Designee shall expire on the closing date of the Corporation's initial public
offering.
7.
<PAGE>
(b) Holders of the outstanding shares of Common Stock shall be
entitled to elect the remaining directors of the Corporation.
5. Conversion. The holders of the Series A Preferred Stock shall
----------
have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert.
----------------
(i) Each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share at the office of this Corporation or any transfer agent
for such shares, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing $8.00 (subject to adjustment for any
splits, dividends, subdivisions, combinations, reclassifications and the like
with respect to such shares) (the "Series A Purchase Price") by the Conversion
Price at the time in effect for such share. The initial Conversion Price per
share shall be the Series A Purchase Price. The Conversion Price shall be
subject to the adjustments set forth below.
(ii) Each share of Series A Preferred Stock shall
automatically be converted into shares of Common Stock as determined from time
to time, (a) at the then effective Conversion Price immediately upon the closing
of an underwritten public offering covering this Corporation's Common Stock at a
minimum gross offering price of $9.00 per share (subject to adjustment for any
splits, dividends, subdivisions, combinations, reclassifications and the like
with respect to such shares) in which this Corporation receives $20,000,000 or
more in net proceeds after deduction of expenses relating to such offering; or
(b) upon this Corporation's receipt of the written consent of the holders of at
least two-thirds of the then outstanding shares of Series A Preferred Stock to
the conversion of all then outstanding Series A Preferred Stock under this
Section.
(iii) No fractional shares of Common Stock shall be issued
upon conversion of Series A Preferred Stock. Any fractional share of Common
Stock (based on the aggregate number of shares of Series A Preferred Stock the
holder is converting at the time) shall be redeemed for the then effective
Conversion Price payable as promptly as possible whenever funds are legally
available therefor.
(b) Mechanics of Conversion. Before any holder of Series A
-----------------------
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, he or it shall surrender the certificate therefor, duly endorsed, at the
office of this Corporation or of any transfer agent for the Series A Preferred
Stock, and shall give written notice to this Corporation at such office that he
elects to convert the same. This Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Series A
Preferred Stock a certificate or certificates for the number of shares of Common
Stock to which he or it shall be entitled as aforesaid. Such
8.
<PAGE>
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Series A Preferred Stock
to be converted, and the person entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder of such shares of Common Stock on such date. If the conversion is in
connection with an underwritten offering of securities pursuant to the
Securities Act of 1933, as amended, the conversion may, at the option of any
holder tendering shares of Series A Preferred Stock for conversion, be
conditioned upon the closing with the underwriters of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive the
Common Stock upon conversion of the Series A Preferred Stock shall not be deemed
to have converted such Series A Preferred Stock until immediately prior to the
closing of such sale of securities.
(c) Adjustments to Conversion Price.
-------------------------------
(i) Adjustments to Conversion Price Upon Certain Public
---------------------------------------------------
Offerings. In the event of an underwritten public offering covering this
- ---------
Corporation's Common Stock at a gross offering price to the Corporation of less
than $12.00 per share (subject to adjustment for any splits, dividends,
subdivisions, combinations, reclassifications and the like with respect to such
shares), the Conversion Price shall be adjusted in accordance with the following
table (each of which per share price shall be subject to adjustment for any
splits, dividends, subdivisions, combinations, reclassifications and the like
with respect to such shares):
EFFECTIVE
PUBLIC OFFERING PRICE PER SHARE ("OFFERING PRICE") CONVERSION PRICE
- -------------------------------------------------- ----------------
Greater than $11.00 but less
than $12.00 $7.75 (except as set
in (c)(ii) below)
Greater than $10.00 but less
than or equal to $11.00 $7.10
Less than or equal to $10.00 $6.80
(ii) Notwithstanding the foregoing, the Conversion Price
with respect to an Offering Price greater than $11.00 per share but less than
$12.00 per share shall be determined as follows: if such offering with such
valuation is consummated within one year from the original issuance of the
Series A Preferred Stock, the Conversion Price shall be $7.75 per share. If such
offering with such valuation is consummated more than one year from such
original issuance date, the Conversion Price shall be $7.60 per share.
9.
<PAGE>
(iii) Adjustments for Stock Dividends, Subdivisions,
----------------------------------------------
Combinations or Consolidation of Common Stock. In the event of a dividend on
- ---------------------------------------------
shares of Common Stock paid in shares of Common Stock or in the event the
outstanding shares of Common stock shall be subdivided (by stock split or
otherwise), into a greater number of shares, the Conversion Price then in effect
shall, concurrently with the record date of such stock dividend or the
effectiveness of such subdivision, be proportionately decreased. In the event
the outstanding shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common, the
Conversion Price then in effect shall, concurrently with the effectiveness of
such combination or consolidation, be proportionately increased.
(iv) Adjustments for Other Distributions. In the event
-----------------------------------
this Corporation at any time or from time to time makes, or fixes a record date
for the determination of holders of Common Stock entitled to receive any
distribution payable in securities of this Corporation other than shares of
Common Stock, then and in each such event provision shall be made so that the
holders of Series A Preferred Stock shall receive upon conversion thereof, in
addition to the number of shares of Common Stock receivable thereupon, the
amount of securities of this Corporation which they would have received had
their Series A Preferred Stock been converted into Common Stock on the date of
such event and had they thereafter, during the period from the date of such
event to and including the date of conversion, retained such securities
receivable by them as aforesaid during such period, subject to all other
adjustments called for during such period under this Section 5 with respect to
the rights of the holders of the Series A Preferred Stock.
(v) Adjustments for Reorganization, Reclassification,
-------------------------------------------------
Exchange and Subdivisions. If the shares of Common Stock issuable upon
- -------------------------
conversion of the Series A Preferred Stock shall be changed into the same or a
different number of shares of any other class or classes of stock or other
securities or property whether by reorganization, reclassification or otherwise
(other than a subdivision or combination of shares provided for above), the
Conversion Price then in effect shall, concurrently with the effectiveness of
such reorganization or reclassification, be proportionately adjusted such that
the Series A Preferred Stock shall be convertible into, in lieu of the number of
shares of Common Stock which the holders would otherwise have been entitled to
receive, a number of shares of such other class or classes of stock or
securities or other property equivalent to the number of shares of Common Stock
that would have been subject to receipt by the holders upon conversion of the
Series A Preferred Stock immediately before such event; and, in any such case,
appropriate adjustment (as determined by the board of directors) shall be made
in the application of the provisions herein set forth with respect to the rights
and interest thereafter of the holders of the Series A Preferred Stock, to the
end that the provisions set forth herein (including provisions with respect to
changes in and other adjustments of the Conversion Price) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares
10.
<PAGE>
of stock or other property thereafter deliverable upon the conversion of the
Series A Preferred Stock.
(d) No Impairment. This Corporation will not, by amendment of
-------------
its Amended and Restated Articles of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by this Corporation but will at all times in good faith assist in the
carrying out of all the provisions of this Section 5 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series A Preferred Stock against
impairment.
(e) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Conversion Price pursuant to this Section 5,
this Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series A Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. This Corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price at the time in effect, and (iii) the
number of shares of Common Stock and the amount, if any; of other property which
at the time would be received upon the conversion of Series A Preferred Stock.
(f) Notices of Record Date. In the event that this Corporation
----------------------
shall propose at any time:
(i) to declare any dividend or distribution upon its
Common Stock, whether in cash, property, stock or other securities, whether or
not a regular cash dividend and whether or not out of earnings or earned
surplus;
(ii) to offer for subscription pro rata to the holders of
any class or series of its stock any additional shares of stock of any class or
series or other rights;
(iii) to effect any reclassification or recapitalization of
its Common Stock outstanding involving a change in the Common Stock; or
(iv) to merge or consolidate with or into any other
corporation, or sell, lease or convey all or substantially all its property or
business, or to liquidate, dissolve or wind up, then, in connection with each
such event, this Corporation shall send to the holders of the Series A Preferred
Stock:
11.
<PAGE>
(1) at least 20 days' prior written notice of the
date on which a record shall be taken for such dividend, distribution or
subscription rights (and specifying the date on which the holders of Common
Stock shall be entitled thereto) or for determining rights to vote in
respect of the matters referred to in (iii) and (iv) above; and
(2) in the case of the matters referred to in
(iii) and (iv) above, at least 20 days' prior written notice of the date
when the same shall take place (and specifying the date on which the
holders of Common Stock shall be entitled to exchange their Common Stock
for securities or other property deliverable upon the occurrence of such
event).
Each such written notice shall be delivered personally or given by
first class mail, postage prepaid, addressed to the holders of Series A
Preferred Stock at the address for each such holder as shown on the books of
this Corporation.
(g) Reservation of Stock Issuable Upon Conversion. This
---------------------------------------------
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of the Series A Preferred Stock such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all then outstanding shares of the Series A Preferred Stock; and
if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then outstanding shares
of the Series A Preferred Stock, this Corporation will take such corporate
action as may, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose.
(h) Notices. Any notices required by the provisions of this
-------
Section 5 to be given to the holders of shares of Series A Preferred Stock shall
be deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of this
Corporation.
6. Protective Provisions. This Corporation will not, without first
---------------------
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least a majority of the total number of shares of Series A
Preferred Stock then outstanding:
(a) Amend the Amended and Restated Articles of Incorporation
(other than to create a class or series of securities junior in preference and
priority to the Series A Preferred Stock), or change the rights, preferences or
privileges of, or increase the authorized number of shares of, Series A
Preferred Stock or amend this Corporation's Bylaws or increase the number of
authorized directors on the Board of Directors; or
12.
<PAGE>
(b) Authorize, create or issue shares of any class or series of
stock having any rights, preferences or privileges, with respect to liquidation,
conversion or redemption, on a parity with any such rights, preferences or
privileges of the Series A Preferred Stock; or
(c) Authorize, create or issue shares of any class or series of
stock having any rights, preferences or privileges superior to any such rights,
preferences or privileges of the Series A Preferred Stock; or
(d) Reclassify or recapitalize any outstanding shares of
securities of this Corporation into shares having rights, preferences or
privileges on a parity with or superior to any such rights, preferences or
privileges of Series A Preferred Stock; or
(e) Offer for subscription pro rata to the holders of any class
or series of its stock any additional shares of stock of any class or series or
other rights (other than the issuance of securities junior in preference and
priority to the Series A Preferred Stock); or
(f) Agree to merge or consolidate this Corporation with or into
any other corporation, or sell, transfer, or lease all or substantially all of
the assets of this Corporation or liquidate, dissolve or wind-up this
Corporation; or
(g) Declare a dividend or repurchase or redeem any shares of
capital stock, except upon a redemption of shares of Series A Preferred Stock
pursuant to Section 3 of these Articles or a repurchase at cost pursuant to
Section 7(i) of these Articles or the repurchase of up to 2,375,000 shares of
Common Stock at a price not greater than $8.00 per share in accordance with the
Series A Preferred Stock and Warrant Purchase Agreement dated as of the original
issue date of the Series A Preferred Stock.
7. Approval of Certain Repurchases of Common Stock. Each holder of
-----------------------------------------------
an outstanding share of Series A Preferred Stock shall be deemed to have
consented, for purposes of Sections 502, 503 and 506 of the California General
Corporation law, to distributions made by this Corporation in connection with
(i) any repurchases of shares of Common Stock at cost issued to or held by
service providers upon termination of their services pursuant to pre-existing
agreements providing for the right of repurchase between this Corporation and
such person or (ii) the repurchase of up to 2,375,000 shares of Common Stock at
a price not greater than $8.00 per share in accordance with the Series A
Preferred Stock and Warrant Purchase Agreement dated as of the original issue
date of the Series A Preferred Stock.
8. No Reissuance of Series A Preferred Stock. No share or shares of
-----------------------------------------
Series A Preferred Stock acquired by this Corporation by reason of redemption,
purchase, conversion or otherwise shall be reissued, and all such shares shall
be
13.
<PAGE>
cancelled, retired and eliminated from the shares which the Corporation shall be
authorized to issue, provided this Corporation complies with the terms of these
Articles of Incorporation.
ARTICLE V
The liability of the directors of this Corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law. This Corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the California Corporations Code) through bylaw
provisions, agreements with the agents, vote of shareholders or disinterested
directors, or otherwise in excess of the indemnification otherwise permitted by
Section 317 of the California Corporations Code, subject only to applicable
limits set forth in the California Corporations Code with respect to actions for
breach of duty to this Corporation and its shareholders.
3. The foregoing amendment has been approved by the board of
directors of said Corporation.
4. The foregoing amendment was approved by the holders of the
requisite number of shares of said Corporation in accordance with Sections 902
and 903 of the California Corporations Code; the total number of outstanding
shares of the existing sole class entitled to vote with respect to the foregoing
amendment was 9,984,178 shares of Common Stock. The number of shares voting in
favor of the foregoing amendment equaled or exceeded the vote required, such
required vote being a majority of the outstanding shares of Common Stock. There
were no shares of Preferred Stock outstanding.
14.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this certificate on
January __, 1996.
_____________________________________________
Stanley L. Leopard, Chief Executive Officer
_____________________________________________
Terence J. Griffin, Secretary
The undersigned certify under penalty of perjury that they have read the
foregoing Amended and Restated Articles of Incorporation and know the contents
thereof, and that the statements therein are true.
Executed at Milpitas, California, on January____,1996.
_____________________________________________
Stanley L. Leopard, Chief Executive Officer
_____________________________________________
Terence J. Griffin, Secretary
15.
<PAGE>
EXHIBIT 3.03
RESTATED
BYLAWS
OF
INSYNC SYSTEMS, INC.
ARTICLE I
Offices
Section 1. Principal Executive Office. The principal executive office of
--------------------------
the corporation shall be fixed and located at such place as the Board of
Directors shall by resolution determine. The Board of Directors is hereby
granted full power and authority to change said principal executive office from
one location to another.
Section 2. Other Offices. Other business offices may at any time be
-------------
established by the Board of Directors at any place or places where the
corporation is qualified to do business.
ARTICLE II
Meetings of Shareholders
Section 1. Place of Meetings. All annual or other meetings of
-----------------
Shareholders shall be held at the principal executive office of the corporation,
or at any other place within or without the State of California which may be
designated either by the Board of Directors or by the written consent of all
persons entitled to vote thereat and not present at the meeting, given either
before or after the meeting and filed with the Secretary of the corporation.
Section 2. Annual Meetings. The annual meetings of Shareholders shall be
---------------
held on the first Monday of February of each year at 11 a.m. or at such other
date or time as may be set by the Board. At such meetings, Directors shall be
elected, reports of the affairs of the corporation shall be considered, and any
other business may be transacted which is within the powers of the Shareholders.
Written notice of each annual meeting of Shareholders shall be given either
(i) personally or (ii) by first-class mail or (iii) by third-class mail but only
if the corporation has outstanding shares held of record by five hundred (500)
or more persons (determined as provided in Section 605 of the Code) on the
record date for the Shareholders' meeting, or (iv) by telegraphic or other
written communication. Notices not personally delivered shall be sent charges
prepaid and shall be addressed to the Shareholder at the address of that
Shareholder appearing on the books of the corporation or given by the
Shareholder to the corporation for the purpose of notice. If no such address
appears on the corporation's books or is given, notice shall be deemed to have
been
<PAGE>
given if sent to that Shareholder by mail or telegraphic or other written
communication to the corporation's principal executive office, or if published
at least once in a newspaper of general circulation in the county where that
office is located. Notice shall be deemed to have been given at the time when
delivered personally or deposited in the mail or sent by telegram or other means
of written communication.
If any notice addressed to a Shareholder at the address of that Shareholder
appearing on the books of the corporation is returned to the corporation by the
United States Postal Service marked to indicate that the United States Postal
Service is unable to deliver the notice to the Shareholder at that address, then
all future notices or reports shall be deemed to have been duly given without
further mailing if the same shall be available to the Shareholder on written
demand of the Shareholder at the principal executive office of the corporation
for a period of one (1) year from the date of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
Shareholders' meeting, executed by the Secretary, Assistant Secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
-----------
evidence of the giving of such notice.
Such notices shall specify:
(a) the place, the date, and the hour of such meeting;
(b) those matters which the Board, at the time of the mailing of the
notice, intends to present for action by the Shareholders;
(c) if Directors are to be elected, the names of nominees intended at
the time of the notice to be presented by management for election;
(d) the general nature of a proposal, if any, to take action with
respect to approval of (i) a contract or transaction in which a Director has a
direct or indirect financial interest, pursuant to Section 310 of the
Corporations Code of California (the "Code"), (ii) an amendment of the Articles
of Incorporation, pursuant to Section 902 of the Code, (iii) a reorganization of
the corporation, pursuant to Section 1201 of the Code, (iv) a voluntary
dissolution of the corporation, pursuant to Section 1900 of the Code, or (v) a
distribution in dissolution other than in accordance with the rights of
outstanding preferred shares, pursuant to Section 2007 of the Code; and
(e) such other matters, if any, as may be expressly required by
statute.
Section 3. Special Meetings. Special meetings of the Shareholders, for the
----------------
purpose of taking any action permitted by the Shareholders under the General
Corporation Law and the Articles of Incorporation of this corporation, may be
called at anytime by the Chairman of the
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Board or the President, or by the Board of Directors, or by one or more
Shareholders holding not less than ten percent of the votes at the meeting. Upon
request in writing that a special meeting of Shareholders be called for any
proper purpose, directed to the Chairman of the Board, President, Executive Vice
President, or Secretary by any person (other than the Board) entitled to call a
special meeting of Shareholders, the Officer forthwith shall cause notice to be
given to Shareholders entitled to vote that a meeting will be held at a time
requested by the person or persons calling the meeting, not less than thirty-
five (35) nor more than sixty (60) days after receipt of the request. Except in
special cases where other express provision is made by statute, notice of such
special meetings shall be given in the same manner as for annual meetings of
Shareholders. If the notice is not given within twenty (20) days after receipt
of the request, then the person or persons requesting the meeting may give the
notice. In addition to the matters required by items (a) and, if applicable, (c)
of the preceding Section, notice of any special meeting shall specify the
general nature of the business to be transacted, and no other business may be
transacted at such meeting.
Section 4. Quorum. The presence in person or by proxy of the persons
------
entitled to vote a majority of the voting shares at any meeting shall constitute
a quorum for the transaction of business. The Shareholders present at a duly
called or held meeting at which a quorum is present may continue to do business
until adjournment, notwithstanding the withdrawal of enough Shareholders to
leave less than a quorum, if any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
Section 5. Adjourned Meeting and Notice Thereof. Any Shareholders'
------------------------------------
meeting, annual or special, whether or not a quorum is present, may be adjourned
from time to time by the vote of a majority of the shares, the holders of which
are either present in person or represented by proxy thereat, but in the absence
of a quorum, no other business may be transacted at such meeting, except as
provided in Section 4 above.
When any Shareholders' meeting, either annual or special, is adjourned for
forty-five (45) days or more, or if after adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given as in
the case of an original meeting. Except as provided above, it shall not be
necessary to give any notice of the time and place of the adjourned meeting or
of the business to be transacted thereat, other than by announcement of the time
and place thereof at the meeting at which such adjournment is taken.
Section 6. Voting. Unless a record date for voting purposes be fixed as
------
provided in Section 1 of Article V of these Bylaws, then, subject to the
provisions of sections 702 through 704, inclusive, of the Code (relating to
voting of shares held by a fiduciary, in the name of a corporation, or in joint
ownership), only persons in whose names shares entitled to vote stand on the
stock records of the corporation at the close of business on the business day
next preceding the day on which notice of the meeting is given or, if such
notice is waived, at the close of business on the business day next preceding
the day on which the meeting of Shareholders is held, shall be
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entitled to vote at such meeting, and such day shall be the record date for such
meeting. Such vote may be viva voce or by ballot; provided, however, that all
---------
elections for Directors must be by ballot upon demand made by a Shareholder at
any election and before the voting begins. If a quorum is present, except with
respect to election of Directors, the affirmative vote of the majority of the
shares represented at the meeting and entitled to vote on any matter shall be
the act of the Shareholders, unless the vote of a greater number or voting by
classes is required by the Code or the Articles of Incorporation. Any
Shareholder entitled to vote on any matter may vote part of the shares in favor
of the proposal and refrain from voting the remaining shares or, except when the
matter is the election of Directors, may vote them against the proposal; but, if
the Shareholder fails to specify the number of shares which the Shareholder is
voting affirmatively, it will be conclusively presumed that the Shareholder's
approving vote is with respect to all shares which the Shareholder is entitled
to vote. Subject to the requirements of the next sentence, every Shareholder
entitled to vote at any election for Directors shall have the right to cumulate
his votes and give one candidate a number of votes equal to the number of
Directors to be elected multiplied by the number of votes to which his shares
are entitled, or to distribute his votes on the same principle among as many
candidates as he shall think fit. No Shareholder shall be entitled to cumulative
votes unless the name of the candidate or candidates for whom such votes would
be cast has been placed in nomination prior to the voting and any Shareholder
has given notice at the meeting prior to the voting of such Shareholder's
intention to cumulate his votes. The candidates receiving the highest number of
votes of shares entitled to be voted for them, up to the number of Directors to
be elected, shall be elected; votes against any candidate and votes withheld
shall have no legal effect.
Section 7. Validation of Defectively Called or Noticed Meetings. The
----------------------------------------------------
transactions of any meeting of Shareholders, either annual or special, however
called and noticed, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum be present either in person or by proxy,
and if, either before or after the meeting, each of the persons entitled to
vote, not present in person or by proxy, or who, though present, has, at the
beginning of the meeting, properly objected to the transaction of any business
because the meeting was not lawfully called or convened, or to particular
matters of business legally required to be included in the notice, but not so
included, signs a written waiver of notice, or a consent to the holding of such
meeting, or an approval of the minutes thereof. The waiver of notice or consent
or approval need not specify either the business to be transacted or the purpose
of any annual or special meeting of Shareholders, except that if action is taken
or proposed to be taken for approval of any of those matters specified in
Section 2 of Article II of these Bylaws, the waiver of notice or consent or
approval shall state the general nature of the proposal. All such waivers,
consents, or approvals shall be filed with the corporate records or made a part
of the minutes of the meets.
Section 8. Action Without Meeting. Directors may be elected without a
----------------------
meeting by a consent in writing, setting forth the action so taken, signed by
all of the persons who would be entitled to vote for the election of Directors,
provided that, without notice except as hereinafter set forth, a Director may be
elected at any time to fill a vacancy not filled by the Directors by the
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written consent of persons holding a majority of the outstanding shares entitled
to vote for the election of Directors.
Any other action which, under any provision of the California General
Corporation Law may be taken at a meeting of the Shareholders, may be taken
without a meeting, and without notice except as hereinafter set forth, if a
consent in writing, setting forth the action so taken, is signed by the holders
of outstanding shares having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted. Unless the consents of
all Shareholders' entitled to vote have been solicited in writing,
(a) Notice of any proposed Shareholder approval of (i) a contract or
other transaction with an interested Director, (ii) indemnification of an agent
of the corporation as authorized by Section 15 of Article III of these Bylaws,
(iii) a reorganization of the corporation as defined in section 181 of the Code,
or (iv) a distribution in dissolution other than in accordance with the rights
of outstanding preferred shares, if any, without a meeting by less than
unanimous written consent, shall be given at least ten (10) days before the
consummation of the action authorized by such approval; and
(b) Prompt notice shall be given of the taking of any other corporate
action approved by Shareholders without a meeting by less than unanimous written
consent, to those Shareholders entitled to vote who have not consented in
writing. Such notices shall be given in the manner and shall be deemed to have
been given as provided in Section 2 of Article II of these Bylaws.
Unless, as provided in Section 1 of Article V of these Bylaws, the Board of
Directors has fixed a record date for the determination of Shareholders entitled
to notice of and to give such written consent, the record date for such
determination (i) when no prior action by the Board has been taken, shall be the
day on which the first written consent is given, or (ii) when prior action by
the Board has been taken, shall be at the close of business on the day on which
the Board adopts the resolution relating to that action, or the sixtieth (60th)
day before the date of such other action, whichever is later.
Any Shareholder giving a written consent, or the Shareholder's
proxyholders, or a transferee of the shares or a personal representative of the
Shareholder or their respective proxyholders, may revoke the consent by a
writing received by the corporation prior to the time that written consents of
the number of shares required to authorize the proposed action have been filed
with the Secretary of the corporation, but may not do so thereafter. Such
revocation is effective upon its receipt by the Secretary of the corporation.
Section 9. Proxies. Every person entitled to vote for Directors, or on
-------
any other matter, shall have the right to do so either in person or by one or
more agents authorized by a written
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<PAGE>
proxy signed by the person and filed with the Secretary of the corporation. A
proxy shall be deemed signed if the Shareholder's name is placed on the proxy
(whether by manual signature, typewriting, telegraphic transmission or
otherwise) by the Shareholder or the Shareholder's attorney-in-fact. A validly
executed proxy which does not state that it is irrevocable shall continue in
full force and effect unless (i) the person who executed the proxy revokes it
prior to the time of voting by delivering a writing to the corporation stating
that the proxy is revoked or by executing a subsequent proxy and presenting it
to the meeting or by voting in person at the meeting, or (ii) written notice of
the death or incapacity of the maker of that proxy is received by the
corporation before the vote pursuant to that proxy is counted; provided,
however, that no proxy shall be valid after the expiration of eleven (11) months
from the date of the proxy, unless otherwise provided in the proxy. The dates
contained on the forms of proxy presumptively determine the order of execution,
regardless of the postmark dates on the envelopes in which they are mailed. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Sections 705(e) and 705(f) of the Code.
Section 10. Inspectors of Election. In advance of any meeting of
----------------------
Shareholders, the Board of Directors may appoint any persons other than nominees
for office as inspectors of election to act at such meeting or any adjournment
thereof. If inspectors of election be not so appointed, the Chairman of any
such meeting may, and on the request of any Shareholder or his proxy shall, make
such appointment at the meeting. The number of inspectors shall be either one
(1) or three (3). If appointed at a meeting on the request of one or more
Shareholders or proxies, the majority of shares represented in person or by
proxy shall determine whether one (1) or three (3) inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails
or refuses to act, the vacancy may, and on the request of any Shareholder or a
Shareholder's proxy shall, be filled by appointment by the Board of Directors in
advance of the meeting, or at the meeting by the Chairman of the meeting.
The duties of such inspectors shall be as prescribed by section 707 of the
General Corporation Law and shall include: determining the number of shares
outstanding and the voting power of each, the shares represented at the meeting,
the existence of a quorum, and the authenticity, validity, and effect of
proxies; receiving votes, ballots, or consents; hearing and determining all
challenges and questions in any way arising in connection with the right to
vote; counting and tabulating all votes or consents; determining when the polls
shall close; determining the result; and such acts as may be proper to conduct
the election or vote with fairness to all Shareholders. In the determination of
the validity and effect of proxies, the dates contained on the forms of proxy
shall presumptively determine the order of execution of the proxies, regardless
of the postmark dates on the envelopes in which they are mailed.
The inspectors of election shall perform their duties impartially, in good
faith, to the best of their ability, and as expeditiously as is practical. If
there are three (3) inspectors of election, the decision, act, or certificate of
a majority is effective in all respects as the decision, act, or certificate of
all. Any report of certificate made by the inspectors of election is prima
-----
facie
- -----
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<PAGE>
evidence of the facts stated therein.
ARTICLE III
Directors
Section 1. Powers. Subject to the provisions of the Code and any
------
limitations in the Articles of Incorporation and these Bylaws relating to action
required to be approved by the Shareholders or by the outstanding shares, the
business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the Board of Directors.
Section 2. Number and Qualification of Directors. The authorized
-------------------------------------
number of Directors shall be no fewer than four (4) no more than seven (7). The
exact number of authorized Directors shall be seven (7) until changed, within
the limits specified above, by a Bylaw amending this section, duly adopted by
the Board of Directors or by the Shareholders. The indefinite number of
Directors may be changed, or a definite number may be fixed without provision
for an indefinite number, by a duly adopted amendment to the Articles of
Incorporation or by an amendment to this Bylaw duly adopted by the vote or
written consent of holders of a majority of the outstanding shares entitled to
vote; provided, however, that an amendment reducing the fixed number or the
minimum number of Directors to a number less than five (5) cannot be adopted if
the votes cast against its adoption at a meeting, or the shares not consenting
in the case of an action by written consent, are equal to more than sixteen and
two-thirds percent (16-2/3%) of the outstanding shares entitled to vote thereon.
No amendment may change the stated maximum number of authorized Directors to a
number greater than two (2) times the stated minimum number of Directors minus
one (1).
No reduction of the authorized number of Directors shall have the
effect of removing any Director before that Director's term of office expires.
Section 3. Election and Term of Office. The Directors shall be
---------------------------
elected at each annual meeting of Shareholders, but if any such annual meeting
is not held or the Directors are not elected thereat, the Directors may be
elected at any special meeting of Shareholders held for that purpose. All
Directors shall hold office until their respective successors are elected,
subject to the General Corporation Law and the provisions of these Bylaws with
respect to vacancies on the Board.
Section 4. Vacancies. A vacancy or vacancies in the Board of
---------
Directors shall be deemed to exist (i) in the event of the death, resignation or
removal of any Director, (ii) if the Board of Directors by resolution declares
vacant the office of a Director who has been declared of unsound
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<PAGE>
mind by an order of court or convicted of a felony, (iii) if the authorized
number of Directors is increased, or (iv) if the Shareholders fail, at any
meeting of Shareholders at which any Director or Directors are elected, to elect
the number of Directors to be elected at that meeting.
Vacancies in the Board of Directors, except for a vacancy created by
the removal of a Director, may be filled by a majority of the remaining
Directors, though less than a quorum, or by a sole remaining Director, and each
Director so elected shall hold office until his successor is elected at an
annual or a special meeting of the Shareholders. A vacancy in the Board of
Directors created by the removal of a Director may only be filled by the vote of
a majority of the shares entitled to vote represented at a duly held meeting at
which a quorum is present, or by the unanimous written consent of the holders of
all outstanding shares entitled to vote.
The Shareholders may elect a Director or Directors at any time to fill
an vacancy or vacancies not filled by the Directors. Any such election by
written consent shall require the consent of holders of a majority of the
outstanding shares entitled to vote.
Any Direct may resign effective upon giving written notice to the
Chairman of the Board, the President, the Secretary, or the Board of Directors
of the corporation, unless the notice specifies a later time for the
effectiveness of such resignation. If the Board of Directors accepts the
resignation of a Director tendered to take effect at a future time, the Board or
the Shareholders shall have the power to elect a successor to take office when
the resignation is to become effective.
No reduction of the authorized number of Directors shall have the
effect prior to the expiration of his term of office.
Section 5. Place of Meeting. Regular meetings of the Board of
----------------
Directors shall take place within or without the state which has from time to
time by resolution of the Board or by written consent of all members of the
Board. In the absence of such designation, regular meetings shall be held at
the principal executive office of the corporation. Special meetings of the
Board may be held either at a place so designated or at the principal executive
office.
Section 6. Organization Meetings. Immediately following each annual
---------------------
meeting of Share holders, the Board of Directors shall hold a regular meeting at
the place of said annual meeting, or at such other place as shall be fixed by
the Board of Directors, for the purpose of organization, election of Officers,
and the transaction of other business. Call and notice of such meetings are
hereby dispensed with.
Section 7. Other Regular Meetings. Other regular meetings of the
----------------------
Board of Directors shall be held without call at such times and places as
determined by the Board of Directors by resolution duly adopted. Notice of all
such regular meetings of the Board of Directors hereby dispensed with.
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<PAGE>
Section 8. Special Meetings. Special meetings of the Board of
----------------
Directors for any purpose or purposes shall be called at any time by the
Chairman of the Board, the President, the Executive Vice President, or by any
two (2) Directors.
Written notice of the time and place of special meetings shall be
delivered personally to each Director or communicated to each Director by
telephone, or by telegraph or mail, charges prepaid, addressed to him at his
address as it is shown upon the records of the corporation or, if it is not so
shown on such records or is not so shown upon the records of the corporation or,
if it is not, at the place at which the meetings of the Directors are regularly
held. In case such notice is mailed or telegraphed, it shall be deposited in
the United States mail or delivered to the telegraph company in the place in
which the principal executive office of the corporation is located at least four
(4) days prior to the time of the holding of the meeting. In case such notice is
delivered, personally or by telephone, as above provided, it shall be so
delivered at least forty-eight (48) hours prior to the time of the holding of
the meeting. Such mailing, telegraphing, or delivery, personally or by
telephone, as above provided, shall be due, legal, and personal notice to such
Director.
If the meeting is not to be held at the principal executive office of
the corporation, the notice shall state the date, place, and hour of the meeting
and the general nature of the business to be transacted.
Section 9. Action Without Meeting. Any action by the Board of
----------------------
Directors may be taken without a meeting if all members of the Board shall
individually or collectively consent in writing to such action. Such written
consent or consents shall be filed with the minutes of the proceedings of the
Board and shall have the same force and effect as a unanimous vote of such
Directors.
Section 10. Action at a Meeting: Quorum and Required Vote. Presence
---------------------------------------------
of a majority of the authorized number of Directors at a meeting of the Board of
Directors constitutes a quorum for the transaction of business, except as
hereinafter provided. Members of the Board may participate in a meeting through
use of conference telephone or similar communications equipment, so long as all
members participating in such meeting can hear one another. Participation in a
meeting as permitted in the preceding sentence constitutes presence in person at
such meeting. Every act or decision done or made by a majority of the Directors
present at a duly held meeting at which a quorum is present shall be regarded as
the act of the Board of Directors, subject to the provisions of Section 310 of
the Code (as to approval of contracts or transactions in which a Director has a
direct or indirect material financial interest), Section 311 of the Code (as to
appointment of committees), Section 317(e) of the Code (as to indemnification of
Directors), the Articles of Incorporation, and other applicable law. A meeting
at which a quorum is initially present may continue to transact business
notwithstanding the withdrawal of a Director, provided that any action taken is
approved by at least a majority of the required quorum for such meeting.
Section 11. Validation of Defectively Called or Noticed Meetings.
----------------------------------------------------
The transactions of any
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meeting of the Board of Directors, however called and noticed or wherever held,
shall be as valid as though had at a meeting duly held after regular call and
notice, if a quorum is present and if, either before of after the meeting, each
of the Directors not present or who, though present, has, prior to the meeting
or at its commencement, protested the lack of proper notice to him, signs a
written waiver of notice or a consent to holding such meeting or an approval of
the minutes thereof. All such waivers, consents, or approvals shall be filed
with the corporate records or made a part of the minutes of the meeting.
Section 12. Adjournment. A quorum of the Directors may adjourn any
-----------
Directors' meeting to meet again at a stated day and hour; provided, however,
that in the absence of a quorum a majority of the Directors present at any
Directors' meeting, either regular or special, may adjourn from time to time
until the time fixed for the next regular meeting of the Board.
Section 13. Notice of Adjournment. If the meeting is adjourned for
---------------------
more than twenty-four (24) hours, notice of any adjournment to another time or
place shall be given prior to the time of the adjourned meeting to the Directors
who were not present at the time of adjournment. Otherwise, notice of the time
and place of holding an adjourned meeting need not be given to absent Directors
if the time and place be fixed at the meeting adjourned.
Section 14. Fees and Compensation. Directors and members of
---------------------
committees may receive such compensation, if any, for their services, and such
reimbursement for expenses, as may be fixed or determined by resolution of the
Board. This Section 14 shall not be construed to preclude any Director from
serving the corporation in any other capacity as an officer, agent, employee or
otherwise and receiving compensation for those services.
Section 15. Indemnification of Agents of the Corporation and Purchase
---------------------------------------------------------
of Liability Insurance.
- ----------------------
(a) The corporation shall, to the maximum extent and in the manner
permitted by the Code, indemnify each of its Directors and officers against
expenses (as defined in Section 317(a) of the Code), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding (as defined in Section 317(a) of the Code), arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 15, a "Director" or "officer" of the corporation
includes any person (i) who is or was a Director or officer of the corporation,
(ii) who is or was serving at the request of the corporation as a Director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, or (iii) who was a Director or officer of a corporation which was a
predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
(b) The corporation shall have the power, to the extent and in the
manner permitted by the Code, to indemnify each of its employees and agents
(other than Directors and officers) against expenses (as defined in Section
317(a) of the Code), judgments, fines, settlements, and other
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amounts actually and reasonably incurred in connection with any proceeding (as
defined in Section 317(a) of the Code), arising by reason of the fact that such
person is or was an agent of the corporation. For purposes of this Section 15,
an "employee" or "agent" of the corporation (other than a Director or officer)
includes any person (i) who is or was an employee or agent of the corporation,
(ii) who is or was serving at the request of the corporation as an employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, or (iii) who was an employee or agent of a corporation which was a
predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
(c) Expenses incurred in defending any civil or criminal action or
proceeding for which indemnification is required pursuant to Section 15(a) or
for which indemnification is permitted pursuant to Section 15(b) following
authorization thereof by the Board of Directors shall be paid by the corporation
in advance of the final disposition of such action or proceeding upon receipt of
an undertaking by or on behalf of the indemnified party to repay such amount if
it shall ultimately be determined that the indemnified party is not entitled to
be indemnified as authorized in this Section 15.
(d) The indemnification provided by this Section 15 shall not be
deemed exclusive of any other rights to which those seeking indemnification may
be entitled under any Bylaw, agreement, vote of Shareholders or disinterested
Directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the Articles of
Incorporation.
(e) The corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a Director, officer, employee or
agent of the corporation against any liability asserted against or incurred by
such person in such capacity or arising out of such person's status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of this Section 15.
(f) No indemnification or advance shall be made under this Section 15,
except where such indemnification or advance is mandated by law or the order,
judgment or decree of any court of competent jurisdiction, in any circumstance
where it appears:
(1) That it would be inconsistent with a provision of the
Articles of Incorporation, these Bylaws, a resolution of the Shareholders or an
agreement in effect at the time of the accrual of the alleged cause of the
action asserted in the proceeding in which the expenses were incurred or other
amounts were paid, which prohibits or otherwise limits indemnification; or
(2) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
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ARTICLE IV
Officers
Section 1. Officers. The Officers of the corporation shall be a
--------
Chairman of the Board, a President, one or more Executive Vice Presidents, one
or more Senior Vice Presidents, a Secretary, a Chief Technical Officer, and a
Chief Financial Officer. The corporation may also have, at the discretion of
the Board of Directors, one or more Advisory Directors, one or more Assistant
Secretaries, one or more Assistant Chief Financial Officers, and such other
Officers as may be appointed in accordance with the provisions of Section 3 of
this Article. One person may hold two (2) or more offices. Although the
corporation may have, at the discretion of the Board of Directors, one or more
Vice Presidents, such Vice Presidents shall not be deemed to be Officers of this
corporation unless specifically designated as such by the Board of Directors.
Section 2. Election. The Officers of the corporation, except such
--------
Officers as may be appointed in accordance with the provisions of Section 3 or
Section 5 of this Article, shall be chosen annually be the Board of Directors,
and each shall hold his office until he shall resign or shall be removed or
otherwise disqualified to serve, or his successor shall be elected and
qualified.
Section 3. Subordinate Officers, Etc. The Board of Directors may
-------------------------
appoint, and may empower the Chairman of the Board or the President to appoint,
such other Officers as the business of the corporation may require, each of whom
shall hold office, for such period, have such authority, and perform such duties
as are provided in the Bylaws or as the Board of Directs may from time to time
determine.
Section 4. Removal and Resignation. Any Officer may be removed,
-----------------------
either with or without cause, by the Board of Directors at any regular or
special meeting thereof or, except in case of an Officer chosen by the Board of
Directors, by any Officer upon whom such power of removal may be conferred by
the Board of Directors (subject, in each case, to the rights of an Officer under
any contract of employment.
Any Officer may resign at any time by giving written notice to the
Board of Directors, to the President, or to the Secretary of the corporation,
without prejudice, however, to the rights of the corporation under any contract
to which such Officer is a party. Any such resignation shall take effect at the
date of the receipt of such notice or at any later time specified therein; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 5. Vacancies. A vacancy in any office because of death,
---------
resignation, removal, disqualification, or any other cause shall be filled in
the manner prescribed in the Bylaws for regular appointments to such office.
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Section 6. Chairman of the Board. The Chairman of the Board shall be
---------------------
the Chief Executive Officer of the corporation and shall, subject to the control
of the Board of Directors, have general supervision, direction and control of
the business and Officers of the corporation. The Chairman of the Board shall,
if present, preside at all meetings of the Board of Directors and the
Shareholders and exercise and perform such other powers and duties as may be
from time to time assigned to him by the Board of Directors or prescribed by the
Bylaws.
Section 7. Office of the President. In the absence of the Chairman
-----------------------
of the Board, the Officer or Officers holding the Office of the President shall
perform all the duties of the Chairman of the Board as prescribed in Section 6
of this Article IV. In addition, the Officer or Officers holding the Office of
the President of the corporation shall have such other powers and perform such
other duties as from time to time may be assigned to the Officer or Officers
holding the Office of the President by the Board of Directors or prescribed by
the Bylaws. The Board of Directors may in its discretion divide the functions
of the Office of the President between different Officers.
Section 8. Executive Vice Presidents. In the absence of both the
-------------------------
President and the Chairman of the Board, the Executive Vice Presidents, in the
order of their rank as fixed by the Board of Directors, or if not ranked, the
Executive Vice President designated by the Board of Directors, shall perform all
the duties of the President and of the Chairman of the Board, and when so
acting, shall have all the powers of, and be subject to all the restrictions
upon, the President and the Chairman of the Board. The Executive Vice
Presidents shall have such other powers and perform such other duties as from
time to time may be prescribed for them by the Board of Directors or the Bylaws.
Section 9. Chief Technical Officer. The Chief Technical Officer
-----------------------
shall be the Chief Technical Officer of the corporation and shall have general
supervisory and executive responsibility for the corporation's research,
development, and implementation of technology. The Chief Technical Officer
shall have such other powers and perform such other duties as from time to time
may be prescribed for him by the Board of Directors or the Bylaws.
Section 10. Chief Financial Officer. The Chief Financial Officer
-----------------------
shall be the Chief Financial Officer of the corporation and shall keep and
maintain, or cause to be kept and maintained, adequate and correct accounts of
the properties and business transactions of the corporation, including accounts
of its assets, liabilities, receipts, disbursements, gains, losses, capital,
surplus, and shares. Any surplus, including earned surplus, paid-in surplus, and
surplus arising from a reduction of stated capital, shall be classified
according to source and shown in a separate account. The books of account shall
at all reasonable times be open to inspection by any Directors.
The Chief Financial Officer shall deposit all moneys and other
valuables in the name and to
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<PAGE>
the credit of the corporation with such depositories as may be designated by the
Board of Directors. He shall disburse the funds of the corporation as may be
ordered by the Board of Directors, shall render to the Chairman of the Board and
Directors, whenever they request it, an account of all of his transactions as
Chief Financial Officer and of the financial condition of the corporation, and
shall have such other powers and perform such other duties as may be prescribed
by the Board of Directors or the Bylaws.
Section 11. Senior Vice Presidents. Senior Vice Presidents shall have
----------------------
such powers and perform such duties as from time to time may be prescribed for
them respectively by the Board of Directors or the Bylaws.
Section 12. Secretary. The Secretary shall record or cause to be
---------
recorded, and shall keep or cause to be kept, at the principal executive office
and such other place as the Board of Directors may order, a Book of Minutes of
actions taken at all meetings of Directors and Shareholders, with the time and
place of holding, whether regular or special, and if special, how authorized,
the notice thereof given, the names of those present at Directors' meetings, the
number of shares present or represented at Shareholders' meetings, and the
proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent, a share
register, or a duplicate share register, showing the names of the Shareholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings
of the Shareholders and of the Board of Directors required by the Bylaws or by
law to be given, and he shall keep the seal of the corporation in safe custody,
and shall have such other powers and perform such other duties as may be
prescribed by the Board of Directors or by the Bylaws.
Section 13. Advisory Directors. The Board of Directors may appoint
------------------
one or more Advisory Directors who shall, upon invitation of the Board of
Directors, attend meetings of the Board of Directors. Advisory Directors shall
make themselves available to the Board of Directors for advice and consultation
but shall not be members of the Board of Directors and shall not have the power
to vote on matters brought before the Board of Directors. Advisory Directors
shall have such other powers and perform such other duties as may be prescribed
by the Board of Directors.
ARTICLE V
Committees
Section 1. Committees of Directors
-----------------------
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<PAGE>
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of two or more directors, to serve at the pleasure of the board. The
board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent member at any meeting of the committee.
The appointment of members or alternate members of a committee requires the vote
of a majority of the authorized number of directors. Any committee, to the
extent provided in the resolution of the board, shall have all the authority of
the board, except with respect to:
(a) the approval of any action which, under the Code, also requires
shareholders' approval or approval of the outstanding shares;
(b) the filling of vacancies on the board of directors or in any
committee;
(c) the fixing of compensation of the directors for serving on the
board or any committee;
(d) the amendment or repeal of these bylaws or the adoption of new
bylaws;
(e) the amendment or repeal of any resolution of the board of
directors which by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation, except at a
rate or in a periodic amount or within a price range determined by the board of
directors; or
(g) the appointment of any other committees of the board of directors
or the members of such committees.
Section 2. MEETINGS AND ACTION OF COMMITTEES
---------------------------------
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of these bylaws, with such changes in
the context of these bylaws as are necessary to substitute the committee and its
members for the board of directors and its members; provided, however, that the
time of regular meetings of committees may be determined either by resolution of
the board of directors or by resolution of the committee, that special meetings
of committees may also be called by resolution of the board of directors, and
that notice of special meetings of committees shall also be given to all
alternate members, who shall have the right to attend all meetings of the
committee. The board of directors may adopt rules for the government of any
committee not inconsistent with the provisions of these bylaws.
ARTICLE VI
Miscellaneous
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<PAGE>
Section 1. Record Date. The Board of Directors may fix a time in the
-----------
future as a record date for the determination of the Shareholders entitled to
notice of and to vote at any meeting of Shareholders or entitled to give consent
to corporate action in writing without a meeting, to receive any report, to
receive any dividend or distribution, or any allotment of rights, or to exercise
rights in respect to any change, conversion, or exchange of shares. The record
date so fixed shall be not more than sixty (60) days nor less than ten (10) days
prior to the date of any meeting, nor more than sixty (60) days prior to any
other event for the purposes of which it is fixed. When a record date is so
fixed, only Shareholders of record on that date are entitled to notice of and to
vote at any such meeting, to give consent without a meeting, to receive any
report, to receive a dividend, distribution, or allotment of rights, or to
exercise the rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date, except as
otherwise provided in the Articles of Incorporation or Bylaws.
If the Board of Directors does not so fix a record date, then the
record date for determining Shareholders for any such purpose shall be at the
close of business on the day on which the Board adopts the applicable resolution
or the sixtieth (60th) day before the date of that action, whichever is later.
Section 2. Inspection of Corporate Records. The accounting books and
-------------------------------
records, the record of Shareholders, and minutes of proceedings of the
Shareholders and the Board and committees of the Board of this corporation and
any subsidiary of this corporation shall be open to inspection upon the written
demand on the corporation of any Shareholder or holder of a voting trust
certificate at any reasonable time during usual business hours, for a purpose
reasonably related to such holder's interests as a Shareholder or as the holder
of such voting trust certificate. Such inspection by a Shareholder or holder of
a voting trust certificate may be made in person or by agent or attorney, and
the right of inspection includes the right to copy and make extracts.
A Shareholder or Shareholders holding at least five percent (5%) in
the aggregate of the outstanding voting shares of the corporation or who hold at
least one percent (1%) of such voting shares and have filed a Schedule 14A with
the United States Securities and Exchange Commission relating to the election of
Directors of the corporation shall have (in person, or by agent or attorney) the
right to inspect and copy the record of Shareholders' names and addresses and
shareholdings during usual business hours upon five (5) business days' prior
written demand upon the corporation upon written demand and upon the tender of
its usual charges, a list of the Shareholders' names and addresses, who are
entitled to vote for the election of Directors, and their shareholdings, as of
the most recent records date for which it has been compiled or as of a date
specified by the Shareholder subsequent to the date of demand. The list shall be
made available on or before the latter of five (5) business days after the
demand is received or the date specified therein as the date as of which the
list is to be compiled.
Every Director shall have the absolute right at any reasonable time to
inspect and copy all books, records, and documents of every kind and to inspect
the physical properties of the
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<PAGE>
corporation. Such inspection by a Director may be made in person or by agent or
attorney, and the right of inspection includes the right to copy and make
extracts.
Section 3. Checks, Drafts. Etc. All checks, drafts, or other orders
-------------------
for payment of money, notes, or other evidences of indebtedness, issued in the
name of or payable to the corporation, shall be signed or endorsed by such
person or persons and in such manner as, from time to time, shall be determined
by resolution of the Board of Directors.
Section 4. Annual and Other Reports. The Board of Directors of the
------------------------
corporation shall cause an annual report to be sent to the Shareholders not
later than one hundred twenty (120) days after the close of the fiscal or
calendar year and at least fifteen (15) days (or, if sent by third-class mail,
thirty-five (35) days) before the annual meeting of Shareholders to be held
during the next fiscal year and in the manner specified in Section 2 of Article
II of these Bylaws for giving notice to Shareholders of the corporation. Such
report shall contain a balance sheet as of the end of such fiscal year and an
income statement and statement of changes in financial position for such fiscal
year, accompanied by any report thereon of independent accountants or, if there
is no such report, the certificate of an authorized Officer of the corporation
that such statements were prepared without audit from the books and records of
the corporation.
The foregoing requirement of an annual report shall be waived so long
as the shares of the corporation are held by fewer than one hundred (100)
holders of record as determined as provided in section 605 of the Code.
A Shareholder or Shareholders holding at least five percent (5%) of
the outstanding shares of any class of the corporation may make a written
request to the corporation for an income statement of the corporation for the
three (3)-month, six (6)-month, or nine (9)-month period of the current fiscal
year ended more the date of the request and a balance sheet of the corporation
and, in addition, if no annual report for the last fiscal has been sent to
Shareholders, the annual report for the last fiscal year. The corporation shall
use its best efforts to deliver the statement to the person making the request
within thirty (30) days thereafter. A copy of any such statements shall be kept
on file in the principal executive office of the corporation for twelve (12)
months, and they shall be exhibited at all reasonable times to any Shareholder
demanding an examination of them or a copy shall be mailed to such Shareholder.
The corporation shall, upon the written request of any Shareholder,
mail to the Shareholder a copy of the last annual, semiannual, or quarterly
income statement which it has prepared and a balance sheet as of the end of the
period. The quarterly income balance sheets referred to in this section shall
be accompanied by the report thereon, if any, of any dependent accountants
engaged by the corporation or the certificate of an authorized Officer of the
corporation that such financial statements were prepared without audit from the
books and records of the corporation.
Section 5. Contracts, Etc., How Executed. The Board of Directors,
-----------------------------
except as in the
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<PAGE>
Bylaws otherwise provided, may authorize any Officer or Officers, agent or
agents, to enter into any contract or execute any instrument in the name of and
on behalf of the corporation, and such authority may be general or confined to
specific instances; and, unless so authorized or ratified by the Board of
Directors, no Officer, agent, or employee shall have any power or authority to
bind the corporation by any contract or engagement or to pledge its credit or to
render it liable for any purpose or to any amount.
Section 6. Certificate for Shares. Every holder of shares in the
----------------------
corporation shall be entitled to have a certificate signed in the name of the
corporation by the Chairman or Vice Chairman of the Board or the president or
the Executive Vice President and by the Chief Financial Officer or an Assistant
Chief Financial Officer or the secretary or any Assistant secretary, certify the
number of shares and the class or series of shares owned by the Shareholder. In
case any Officer, transfer agent, or registrar who has signed a certificate
shall have ceased to be such Officer, transfer agent, or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if such person were an Officer, transfer agent, or registrar at the date of
issue. Any or all of the signatures on the certificate may be facsimile.
Certificates for shares may be issued prior to full payment under such
restrictions and for such purposes as the Board of Directors or the Bylaws may
provide; provided, however, that any such certificate so issued prior to full
payment shall state on the face thereof the amount remaining unpaid and the
terms of payment thereof.
No new certificate for shares shall be issued in lieu of an old
certificate unless the latter is surrendered and cancelled at the same time;
provided, however, that a new certificate will be issued without the surrender
and cancellation of the old certificate if (1) the old certificate is lost,
apparently destroyed, or wrongfully taken; (2) the request for the issuance of
the new certificate is made within a reasonable time after the owner of the old
certificate has notice of its loss, destruction, or theft; (3) the request for
the issuance of a new certificate is made prior to the receipt of notice by the
corporation that the old certificate has been acquired by a bona fide purchaser;
(4) the owner of the old certificate files a sufficient indemnity bond with or
provides other adequate security to the corporation; and (5) the owner satisfies
any other reasonable requirements imposed by the corporation. In the event of
the issuance of a new certificate, the rights and liabilities of the
corporation, and of the holders of the old and new certificates, shall be
governed by the provisions of sections 9104 and 9405 of the California
Commercial Code.
Section 7. Representation of Shares of Other Corporations. The
----------------------------------------------
President, the Chairman of the Board, or the Executive Vice President and the
Secretary or any Assistant Secretary of this corporation are authorized to vote,
represent, and exercise on behalf of this corporation all rights incident to any
and all shares of any other corporation or corporations standing in the name of
this corporation. The authority herein granted to said Officers to vote or
represent on behalf of this corporation any and all shares held by this
corporation in any other corporation or corporations may be exercised either by
such Officers in person or by any other person authorized so to do by
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<PAGE>
proxy or power of attorney duly executed by said Officers.
Section 8. Inspection of Bylaws. The corporation shall keep in its
--------------------
principal executive office in California, or if its principal executive office
is not in California, then at its principal business office in California (or
otherwise provide upon written request of any Shareholder), the original or a
copy of the Bylaws as amended or otherwise altered to date, certified by the
Secretary, which shall be open to inspection by the Shareholders at all
reasonable times during office hours.
Section 9. Construction and Definitions. Unless the context
----------------------------
otherwise requires, the general provisions, rules of construction, and
definitions contained in the California General Corporation Law shall govern the
construction of these Bylaws. Without limiting the generality of the foregoing,
the masculine gender includes the feminine and neuter, the singular number
includes the plural and the plural number includes the singular, and the term
"person" includes a corporation as well as a natural person.
ARTICLE VI
Amendments
Section 1. Power of Shareholders. New Bylaws may be adopted or these
---------------------
Bylaws may be amended or repealed by the affirmative vote of a majority of the
outstanding shares entitled to vote, or by the written assent of Shareholders
entitled to vote such shares, except as otherwise provided by law or by the
Articles of Incorporation.
Section 2. Power of Directors. Subject to the right of Shareholders
------------------
as provided in Section 1 of this Article VI to adopt, amend, or repeal Bylaws,
Bylaws, other than a Bylaw or amendment thereof changing the authorized number
of Directors (except to fix the exact number of authorized Directors pursuant to
a Bylaw providing for a variable number of Directors), may be adopted, amended,
or repealed by the Board of Directors.
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<PAGE>
CERTIFICATE OF SECRETARY
------------------------
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting Secretary of Insync Systems,
Inc.; and
2. That the foregoing Bylaws, comprising 17 pages, constitute the Bylaws
of said corporation as duly adopted by the Board of Directors of the corporation
on April 24, 1997.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal
of the corporation as of the 29th day of August, 1997.
___________________________________________
Terence J. Griffin, Secretary
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<PAGE>
EXHIBIT 4.01
NUMBER________________ INSYNC SYSTEMS, INC. SHARES
A CALIFORNIA CORPORATION
INCORPORATED IN CALIFORNIA
AUGUST 30, 1989
CAPITAL STOCK 54,000,000 SHARES
COMMON STOCK 50,000,000 SHARES, PAR VALUE $.01 PREFERRED STOCK 4,000,000, PAR
VALUE $.01
THIS CERTIFIES THAT *NAME* is the record holder of *SHARES* fully paid and
nonassessable Shares of the Common Stock of Incync Systems, Inc. a California
corporation, transferable only on the books of the corporation by the holder
hereof in person or by duly authorized attorney, upon surrender of this
certificate properly endorsed or assigned.
This certificate and the shares represented hereby are issued and shall be
held subject to all the provisions of the Articles of Incorporation and the
Bylaws of said corporation and any amendments thereto, to all of which the
holder(s) of this certificate, by acceptance hereof, assent(s). The shares
represented by this certificate are subject to the legends affixed to the back
of this certificate.
A statement of all of the rights, preferences, privileges and restrictions
granted to or imposed upon the respective classes and/or series of shares of
stock of the corporation and upon the holders thereof may be obtained by any
shareholder upon request and without charge, at the principal office of the
corporation, and the corporation will furnish any shareholder, upon request and
without charge, a copy of such statement.
_____________________________________ ____________________________________
Terence J. Griffin, CFO and Secretary Stanley L. Leopard, Chairman and CEO
<PAGE>
FOR VALUE RECEIVED____________________ HEREBY SELLS, ASSIGNS, AND TRANSFERS
UNTO__________________ SHARES REPRESENTED BY THE WITHIN CERTIFICATE AND DO
HEREBY IRREVOCABLY CONSTITUTE AND APPOINT__________________, ATTORNEY TO
TRANSFER THE SAID SHARES ON THE SHARE REGISTER OF THE WITHIN NAMED CORPORATION
WITH FULL POWER OF SUBSTITUTION THE PREMISES.
DATED_____________, 19___
IN PRESENCE OF _______________________________________
(Witness) (Stockholder)
________________________
(Stockholder)
NOTICE: THE SIGNATURE ON THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THIS CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATSOEVER.
<PAGE>
EXHIBIT 4.02
INSYNC SYSTEMS, INC.
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
This Amended and Restated Registration Rights Agreement (the "AGREEMENT")
is made effective as of January 19, 1996 by and among Insync Systems, Inc., a
California corporation (the "COMPANY"), the individuals and entities listed on
the Schedule of New Holders attached hereto (the "NEW HOLDERS"), and the
individuals and entities on the Schedule of Prior Holders attached hereto (the
"PRIOR HOLDERS").
RECITALS
--------
WHEREAS, the Prior Holders, who are parties to the Registration Rights
Agreement dated April 17, 1995 (the "PRIOR AGREEMENT"), now wish their
registration rights to be defined by this Agreement and to terminate the Prior
Agreement upon the effectiveness of this Agreement;
WHEREAS, the New Holders desire to be granted the rights and bound by the
obligations provided herein;
WHEREAS, pursuant to the Prior Agreement, the consent of a majority in
interest of the Prior Holders is required before the Company may grant
registration rights covering additional shares;
WHEREAS, pursuant to the Prior Agreement, the consent of a majority in
interest of each of the following classes of Prior Holders is required to amend
the Prior Agreement: (i) holders of Common Stock of the Company that was subject
to a registration rights agreement prior to April 17, 1995; (ii) holders of
--------
securities that, when originally issued, were (x) Subordinated Convertible
Promissory Notes of the Company and (y) subject to a prior registration rights
agreement; (iii) holders of securities that, when originally issued, were (x)
Series B Preferred Stock of the Company and (y) subject to a prior registration
rights agreement and (iv) all Prior Holders as one class; and
WHEREAS, the undersigned Prior Holders now wish to consent to the grant of
registration rights to the New Holders, and to the amendment and restatement of
the Prior Agreement in it entirety to read as set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall
-------------------
have the
<PAGE>
following respective meanings:
"COMMISSION" shall mean the Securities and Exchange Commission or any other
----------
federal agency at the time administering the Securities Act.
"HOLDER" shall mean (i) any person holding Registrable Securities
------
originally issued to such person or (ii) any person holding Registrable
Securities to whom the rights under this Agreement have been transferred in
accordance with Section 2.8 hereof or in accordance with the corresponding
provision of the registration rights agreement controlling the Registrable
Securities on the date of such transfer.
"REGISTRABLE SECURITIES" shall mean any Common Stock of the Company which
----------------------
has become subject to the terms of this Agreement pursuant to Section 2.2 hereof
including any Common Stock issued or issuable pursuant to any conversion, stock
split, stock dividend, recapitalization, or similar event so long as such Common
Stock has not been sold to or through a broker or dealer or underwriter in a
public distribution or a public securities transaction.
The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"REGISTRATION EXPENSES" shall mean all expenses, except as otherwise stated
---------------------
below, incurred by the Company in complying with Section 2.1 hereof, including,
without limitation, all registration, qualification and filing fees, printing
expenses, escrow fees, fees and disbursements of counsel for the Company, blue
sky fees and expenses, the expense of any special audits incident to or required
by any such registration (but excluding the compensation of regular employees of
the Company which shall be paid in any event by the Company) and the reasonable
fees and disbursements of one counsel for all Holders.
"RESTRICTED SECURITIES" shall mean the securities of the Company whose
---------------------
certificates are required to bear legends indicating that such securities have
not been registered under the Securities Act.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or any
--------------
similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"SELLING EXPENSES" shall mean all underwriting discounts, selling
----------------
commissions and stock transfer taxes applicable to the securities registered by
the Holders and, except as set forth under "Registration Expenses" all
reasonable fees and disbursements of counsel for any Holder.
-2-
<PAGE>
2. REGISTRATION.
------------
2.1 COMPANY REGISTRATION.
--------------------
(a) Notice of Registration. If at any time or from time to time
----------------------
the Company shall determine to register any of its Common Stock, either for its
own account or the account of a security holder or holders, other than (i) a
registration relating solely to employee benefit plans, (ii) a registration
relating solely to a Rule 145 transaction, or (iii) a registration in which the
only equity security being registered is Common Stock issuable upon conversion
of convertible debt securities which are also being registered, the Company
will:
(i) promptly give to each Holder written notice thereof;
and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities which are specified in a
written request or requests, made within 10 days after receipt of such written
notice from the Company, by any Holder; provided, however, that any Holder
requesting the inclusion of Registrable Securities which are not, at such time,
Common Stock of the Company must also delivery with such request such further
instruments as may be necessary to effect the conversion of such Registrable
Securities into Common Stock of the Company prior to registration.
(b) Underwriting. If the registration of which the Company gives
------------
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 2.1(a)(i). In such event the right of any Holder to
registration pursuant to Section 2.1 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of Registrable Securities
in the underwriting shall be limited to the extent provided herein.
All Holders proposing to distribute their Registrable Securities
through such under writing (the "PARTICIPATING HOLDERS") shall (together with
the Company and the other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
managing underwriter selected for such underwriting by the Company.
Notwithstanding any other provision of this Section 2.1, if the managing
underwriter determines that marketing factors require a limitation of the number
of shares to be underwritten, the total number of shares of Registrable
Securities held by Participating Holders to be included in such registration
shall determined as follows:
(i) Preferred Shareholder's Registration Rights Agreement.
-----------------------------------------------------
If, prior to the time of such registration, an agreement governing the
registration rights of holders of Series A Preferred Stock of the Company issued
after January 15, 1996 (and the securities issued or issuable upon the
conversion of such stock) has been entered into by the Company and the initial
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<PAGE>
purchasers of such stock (the "SERIES A REGISTRATION RIGHTS AGREEMENT"), and if
the Series A Registration Rights Agreement remains in effect at the time of such
registration, the aggregate number of Registrable Securities to be included in
such registration by Participating Holders and the allocation of such included
Registrable Securities among the Participating Holders shall be determined by
the applicable terms of the Series A Registration Rights Agreement, including
any amendments thereto.
(ii) Default Cutback. If no Series A Registration Rights
---------------
Agreement exists or is in force at the time of such registration, the managing
underwriter may limit the number of shares of Registrable Securities to be
included in the offering, (1) in the case of the Company's initial public
offering, to zero and, (2) in the case of any other offering, to an amount no
less than 5% of all shares to be included in such offering. In case of any such
limitation under this Section 2(b)(ii), the Company shall so advise all
Participating Holders and other holders proposing to distribute their securities
through such underwriting and the number of shares of Registrable Securities
that may be included in the registration and underwriting shall be allocated
among all the Participating Holders in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities held by such Participating
Holder. To facilitate the allocation of shares in accordance with the above
provisions, the Company may round the number of shares allocated to any
Participating Holder to the nearest 100 shares.
If any Participating Holder disapproves of the terms of any such
underwriting, he or she may elect to withdraw therefrom by written notice to the
Company and the managing underwriter. Any securities excluded or withdrawn from
such underwriting shall be withdrawn from such registration, and shall not be
transferred in a public distribution prior to 180 days after the effective date
of the registration statement relating thereto, or such other shorter period of
time as the under writers may require.
(c) Right to Terminate Registration. The Company shall have the
-------------------------------
right to terminate or withdraw any registration initiated by it under this
Section 2.1 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration.
2.2 SECURITIES COVERED BY THIS AGREEMENT; CONSENT OF PRIOR HOLDERS.
--------------------------------------------------------------
(a) Prior Holders. The undersigned Prior Holders, New Holders
-------------
and the Company hereby consent to the amendment and restatement of the Prior
Agreement to entirely replace its terms with those of this Agreement. Pursuant
to the amending provision of the Prior Agreement, at such time as a majority in
interest of Prior Holders in each of the following classes consents by executing
this Agreement, all such signatories as well as all other Prior Holders shall be
deemed to be parties to this Agreement, and all securities subject to the Prior
Agreement held by all Prior Holders shall be deemed to be Registrable
Securities: (i) holders of Common Stock of the Company that was subject to a
registration rights agreement prior to April 17, 1995; (ii) holders of
--------
securities that, when originally issued, were (x) Subordinated Convertible
Promissory Notes of the
-4-
<PAGE>
Company and (y) subject to a prior registration rights agreement; (iii) holders
of securities that, when originally issued, were (x) Series B Preferred Stock of
the Company and (y) subject to a prior registration rights agreement and (iv)
all Prior Holders as one class. At such time as this Agreement becomes effective
as to all Prior Holders, the Prior Agreement shall be terminated, the provisions
thereof shall be of no further force and effect, and it shall be deemed to be
null and void.
(b) New Holders. The Company hereby grants, the New Holders
-----------
hereby accept the grants of, and the undersigned Prior Holders hereby consent to
the granting of, the registration rights provided for herein to the New Holders.
The registration rights granted to the New Holders hereunder shall become
effective and the Common Stock held by the New Holders along with Common Stock
issuable upon conversion of other securities held by the New Holders as of the
date hereof shall be deemed to be Registrable Securities at such time as a
majority in interest of all Prior Holders consents to such grants by executing
this Agreement.
2.3 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
------------------------
connection with all registrations pursuant to Section 2.1 shall be borne by the
Company. Unless otherwise stated, all Selling Expenses relating to securities
registered on behalf of the Holders and all other registration expenses shall be
borne by the Holders of such securities pro rata on the basis of the number of
shares so registered.
2.4 REGISTRATION PROCEDURES. In the case of each registration,
-----------------------
qualification or compliance effected by the Company pursuant to this Agreement,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:
(a) Prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for at least one hundred
twenty (120) days or until the distribution described in the registration
statement has been completed, whichever first occurs;
(b) Furnish to the Holders participating in such registration
and to the underwriters of the securities being registered such reasonable
number of copies of the registration statement, preliminary prospectus, final
prospectus and such other documents as such underwriters may reasonably request
in order to facilitate the public offering of such securities.
2.5 INDEMNIFICATION.
---------------
(a) The Company will indemnify each Holder, each of its
officers, directors, shareholders and partners, and each person controlling such
Holder within the meaning of Section 15 of the Securities Act, with respect to
which registration, qualification or compliance has been effected pursuant to
this Agreement, and each underwriter, if any, and each person who controls any
underwriter within the meaning of Section 15 of the Securities Act, against all
expenses, claims,
-5-
<PAGE>
losses, damages or liabilities (or actions in respect thereof), including any of
the foregoing incurred in settlement of any litigation, commenced or threatened,
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto, incident to
any such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, or any violation by the Company of the
Securities Act of 1933, the Securities Exchange Act of 1934, state securities
law or any rule or regulation promulgated under the such laws applicable to the
Company in connection with any such registration, qualification or compliance,
and the Company will reimburse each such Holder, each of its officers,
directors, shareholders, partners, and each person controlling such Holder, each
such underwriter and each person who controls any such underwriter, for any
legal and any other expenses reasonably incurred, as such expenses are incurred,
in connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, provided that the Company will not be liable in any
such case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission or alleged untrue
statement or omission, made in reliance upon and in conformity with written
information furnished to the Company by an instrument duly executed by such
Holder, controlling person or underwriter and stated to be specifically for use
therein; provided, however, that the foregoing indemnity agreement is subject to
the condition that, insofar as it relates to any such untrue statement, alleged
untrue statement, omission or alleged omission made in a preliminary prospectus
on file with the Commission at the time the registration statement becomes
effective or the amended prospectus filed with the Commission pursuant to Rule
424(b) (the "Final Prospectus"), such indemnity agreement shall not inure to the
benefit of any underwriter or any Holder, if there is no underwriter, if a copy
of the Final Prospectus was not furnished to the person asserting the loss,
liability, claim or damage at or prior to the time such action is required by
the Securities Act, and if the Final Prospectus would have cured the defect
giving rise to the loss, liability, claim or damage.
(b) Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of Section 15 of the
Securities Act, and each other such Holder, each of its officers and directors
and each person controlling such Holder within the meaning of Section 15 of the
Securities Act, against all claims, losses, damages and liabilities (or actions
in respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company, such Holders, such directors, officers, persons, underwriters or
control persons for any legal or any other expenses reasonably incurred, as such
expenses are incurred, in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to
-6-
<PAGE>
the extent, that such untrue statement (or alleged untrue statement) or omission
(or alleged omission) is made in such registration statement, prospectus,
offering circular or other document in reliance upon and in conformity with
written information furnished to the Company by an instrument duly executed by
such Holder and stated to be specifically for use therein. Notwithstanding the
foregoing, the liability of each Holder under this subsection 2.5(b) shall be
limited in an amount equal to the initial public offering price of the shares
sold by such Holder, unless such liability arises out of or is based on willful
misconduct by such Holder.
(c) Each party entitled to indemnification under this Section
2.5 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Agreement unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such action
and provided further, that the Indemnifying Party shall not assume the defense
for matters as to which there is a conflict of interest or separate and
different defenses. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
2.6 INFORMATION BY HOLDER. The Holder or Holders of Registrable
---------------------
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, the Registrable Securities held by
them and the distribution proposed by such Holder or Holders as the Company may
request in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Agreement.
2.7 RULE 144 REPORTING. With a view to making available the benefits
------------------
of certain rules and regulations of the Commission which may at any time permit
the sale of the Restricted Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to use all reasonable efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Securities Exchange Act of 1934, as
amended;
(b) File with the Commission in a timely manner all reports and
other
-7-
<PAGE>
documents required of the Company under the Securities Act and the Securities
Exchange Act of 1934, as amended (at any time after it has become subject to
such reporting requirements); and
(c) So long as the Holder owns any Restricted Securities to
furnish to the Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 (at any
time after 90 days after the effective date of the first registration statement
filed by the Company for an offering of its securities to the general public),
and of the Securities Act and the Securities Exchange Act of 1934 (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents of the Company and other information in the possession of or
reasonably obtainable by the Company as the Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing the Holder
to sell any such securities without registration .
2.8 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company
-------------------------------
to register securities granted under Section 2.1 may be assigned to a transferee
or assignee reasonably acceptable to the Company in connection with any transfer
or assignment of Registrable Securities by a Holder provided that: (i) such
transfer may otherwise be effected in accordance with applicable securities laws
and all agreements restricting such transfer, (ii) such transferee acquires at
least 20,000 shares of Registrable Securities (iii) written notice is promptly
given to the Company and (iv) such transferee agrees to be bound by the
provisions of this Agreement. Notwithstanding the foregoing, the rights to cause
the Company to register securities may be assigned to any constituent partner or
retired partner of a Holder which is a partnership, or an affiliate of a Holder
which is a corporation, or a family member or trust for the benefit of a Holder
who is an individual, without compliance with item (ii) above, provided written
notice thereof is promptly given to the Company and the transferee agrees to be
bound by the provisions of this Agreement.
2.9 TERMINATION OF REGISTRATION RIGHTS. The rights granted pursuant
----------------------------------
to Section 2.1 of this Agreement shall terminate three (3) years after the
Company's initial public offering (other than [a] an offering relating solely to
employee benefit plans; or [b] an offering relating solely to a Commission Rule
145 transaction).
3. STANDOFF AGREEMENT. Except as set forth below, in connection with the
------------------
Company's first two public offerings of the Company's securities, each Holder
agrees, upon request of the Company or the underwriters managing any
underwritten offering of the Company's securities, not to sell, make any short
sale of, loan, grant any option for the purchase of, or otherwise dispose of any
securities of the Company (other than those included in the registration)
without the prior written consent of the Company or such underwriters, as the
case may be, for such period of time (not to exceed one hundred eighty (180)
days) from the effective date of such registration as may be requested by the
underwriters, provided that the officers and directors of the Company who own
stock of the Company also agree to such restrictions. The Holders agree that
the Company may instruct its transfer agent to place stop-transfer notations in
its records to enforce the provisions of
-8-
<PAGE>
this Section 3.
4. AMENDMENT.
---------
(a) Any provision of this Agreement may be amended or the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of each of:
(i) the Company,
(ii) Holders of a majority of all Registrable Securities
then outstanding, voting as one class,
(iii) Holders of a majority of Registrable Securities then
outstanding which, when originally purchased, were (x)
Common Stock of the Company and (y) subject to a
registration rights agreement prior to April 17, 1995,
(iv) Holders of a majority of Registrable Securities then
outstanding which, when originally purchased, were (x)
Subordinated Convertible Notes of the Company and (y)
subject to a prior registration rights agreement, and
(v) Holders of a majority of Registrable Securities then
outstanding which, when originally purchased, were (x)
Series B Preferred Stock of the Company and (y) subject
to a prior registration rights agreement.
Notwithstanding the above provisions, no such amendment or waiver shall
reduce the aforesaid number of securities, the Holders of which are required to
consent to any waiver or amendment, without the consent of the Holders of all
Registrable Securities.
Any amendment or waiver effected in accordance with this subsection 4(a)
shall be binding upon each Holder of Registrable Securities at the time
outstanding, each future holder of all such securities, and the Company.
(b) Except as expressly provided herein, no Section of this Agreement
may be amended, waived, discharged or terminated other than by a written
instrument signed by the party against whom enforcement of any such amendment,
waiver, discharge or termination is sought.
5. GOVERNING LAW. This Agreement and the legal relations between the
-------------
parties arising hereunder shall be governed by and interpreted in accordance
with the laws of the State of California. The parties hereto agree to submit to
the jurisdiction of the federal and state courts of the
-9-
<PAGE>
State of California with respect to the breach or interpretation of this
Agreement or the enforcement of any and all rights, duties, liabilities,
obligations, powers, and other relations between the parties arising under this
Agreement.
6. ENTIRE AGREEMENT. This Agreement constitutes the full and entire
----------------
understanding and agreement between the parties regarding the matters set forth
herein. Except as otherwise expressly provided herein, the provisions hereof
shall inure to the benefit of, and be binding upon the successors, assigns,
heirs, executors and administrators of the parties hereto.
7. NOTICES, ETC. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery to the party to be notified or three (3) days after
deposit with the United States mail, by registered or certified mail, postage
prepaid, addressed (a) if to a Holder, at such address as such Holder shall have
furnished the Company in writing in accordance with this Section 7 or (b) if to
the Company, at its principal office.
8. COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
-10-
<PAGE>
The foregoing agreement is hereby made effective as of the date first
written above.
"COMPANY"
INSYNC SYSTEMS, INC.
a California corporation
By:_________________________________
Stanley L. Leopard, Chairman and Chief Executive Officer
"PRIOR HOLDER"
_________________________________
Name of Prior Holder
By:_________________________________
Authorized Signatory
Title:_________________________________
"NEW HOLDER"
_________________________________
Name of New Holder
By:_________________________________
Authorized Signatory
Title:_________________________________
(SIGNATURE PAGE TO AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT)
-11-
<PAGE>
SCHEDULE OF NEW HOLDERS
-----------------------
Name Relation to Company
- ---- -------------------
Stanley L. Leopard Chairman and Chief Executive Officer
Frank R. Balma Office of the President and Chief Operating Officer
Brent D. Elliot Office of the President and Chief Technical Officer
Melody R. Leopard Former Spouse of Mr. Leopard
Frederick T. Hecht as Trust For The Benefit of the Children of
Trustee For The Stanley Mr. Leopard
L. Leopard 1994
Irrevocable Trust
A. Grant Elliot and Parents of Brent D. Elliot
Sharon A. Elliot as
Trustees of the A. Grant
Elliot and Sharon A.
Elliot Inter Vivos Trust
Don M. Lyle Director
W. Lee Shevel Director
Russell G. Redenbaugh Director
Pullbrite, Inc. Holder of Convertible Promissory Note
-12-
<PAGE>
SCHEDULE OF PRIOR HOLDERS
-------------------------
Pensco Pension Services, Inc. Phil & Joan Chang
FBO Vince C. Affinito Steven Chang
John C. & Edna L. Aikens Shirley Chen
Woodley A. Allen Allen D. Clark and Dianne
M. Clark
William H. Annesley, III Closefire Limited
Vedona Anstalt Ronald S. Cohn
Robert B. Arthur Stuart Davidson
Astrophel Limited Evelyne Desbrow
Pensco Pension Services, Inc. Robert C. and Phyllis J.
FBO Enrique Barrera A/C BA-049 Doricott Trustees of the
Robert C. and Phyllis J.
Doricott Revocable Living
Byron L. Bertsch Trust under Revocable Living
Trust Agreement Dated August
21, 1979, as Amended
John R. Bertucci
Painewebber as Custodian for
Thomas J. Buono & Mary R. Buono, Tenants Edward F. Dugan, IRA
by the Entirety
Edward F. Dugan
Michael Canizales
Joseph E. Dworak
Walter M. Cardinet & Nancy Cardinet
In Community Property EAG Enterprises
Prestige World Travel, Inc. MP & P/S Trust Robert J. Elliot & Jill
FBO Lori A. Carstens Keechler Elliot, Trustees,
Elliot Family Trust Dated
3-6-92 VA FBO Robert J.
Elliot & Jill Keechler
Jim Tarr & Lori Carstens Trustees, Prestige Elliot
World Travel Inc., MP Pen & P/S Trust FBO
Jim Tarr A. Grant Elliot and Sharon
A. Elliot Revocable Inter
Vivos Trust Dated 4-7-87
Tsai Chun Chiang
Marc Ely
-13-
<PAGE>
Reginald G. Huff, III
Lawrence Bennett & Harriette B. Farber,
JTWROS JAG Investments
David F. Firth
Greg E. Johnson & Sharon I.
Johnson,
Robert Foster Tenants by the Entirety
Gloria Friedman Carl E. and Leah M. Jonson,
JTWROS
Amba Gale Kevin L. Kaldestad
GA Pogue P/S fbo Susan Rho Arthur Kellar
George Brothers Investment Partnership Charles D. Kleinow
Smith Barney SEP Custodian Rainer K. Kraus as Trustee
for Bill Greenhalgh for the Rainer K. Kraus Trust
Dated 10/4/95
Polly Guth Ag Edwards & Sons Inc.
Custodian For Rainer K.
Kraus Rollover IRA Account
Jeffrey E. Hanhausen
Douglas A. Kristjanson
Hapna Foundation
Lawrence Scott Kuechler
Thomas Hardy
Lamar G. Lay
John G. Harkness and Stephanie Harkness,
Trustees Under The Harkness Family Trust David Lustig
Dated July 7, 1982
Douglas L. Martin Self Emp.
Profit Sharing
Michael & Roberta Hesser Retirement Trust, Douglas C.
Martin Trustee
Mary S. Hirt Paul E. Martin
Paul Hirt Richard Martinez
Eric K. Hoffner Thomas M. McGovern
Carleton C. Hoffner, Jr. Robert K. Merrill
Charles E. Horner Sabina M. Merrill
-14-
<PAGE>
Pensco Pension Services, Inc.
FBO Robert K. Merrill Larry Vaughn
Ronald W. Miller as Trustee of the Ronald W. Kelly R. White
Miller Trust Dated 11-28-90
Ronald W. Miller Tamzen B. White
David F. Williams, Jr.
Vinutha Mohan
John A. Winkel/Winkel Family
Trust
Vinh C. Nguyen, MD
Woodcock Foundation
Niloufar Pahlavi
Jim E. Wyant
Shahram Pahlavi
Peter and Kathleen Yaholkovsky
Michael R. and Pamela H. Pauletich
John Richard Powell and Lynne L. Powell,
Tenants In Common
Robert & Sandra Powers
Russell G. Redenbaugh
Russell K. Redenbaugh
Janet G. Redenbaugh
Murray L. Sackman & Marianne M. Karmel,
JTWROS
Alfred L. & Janice Sahagun
Glenn W. Saunders, Jr.
Matthew J. Sheedy
Lewis Stock
Barbara Tiffany
John G. Tyndall, III
-15-
<PAGE>
EXHIBIT 4.03
INSYNC SYSTEMS. INC.
--------------------
AMENDED AND RESTATED
--------------------
1993 STOCK OPTION PLAN
----------------------
1. Purpose and Definitions.
-----------------------
(a) The 1993 Stock Option Plan (the "Option Plan" or the "Amended and
Restated Option Plan") of INSYNC Systems, Inc., a California corporation (the
"Company"), is hereby amended and restated in its entirety. The Option Plan
shall provide for the issuance of incentive stock options ("ISOs") and
nonqualified stock options ("NSOs"). The Option Plan was originally dated
August 9, 1993 for reference purposes. This amendment and restatement is
effective as of April 2, 1995.
(b) The Option Plan's purpose is to promote the long-term success of
the Company by attracting, motivating and retaining key executives, employees,
officers, directors, and consultants (the "Participants"). The Option Plan
seeks to balance Participants' and shareholder interests by providing incentives
to the Participants in the form of stock options which offer rewards for
achieving the Company's long-term strategic and financial objectives.
(c) The Option Plan is intended to give Participants an opportunity to
purchase shares of Company Stock (as defined in Section 3 below) pursuant to (i)
options which may qualify as incentive stock options ("ISOs") under Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), or (ii)
nonstatutory stock options ("NSOs").
(d) The term "Affiliates" as used herein means parent or subsidiary
corporations, as such terms are defined in Section 424(e) and (f) of the Code,
including parents or subsidiaries which become such after adoption of the Option
Plan.
2. Administration of the Plan.
--------------------------
(a) The Option Plan shall be administered by the Company's Board of
Directors (the "Board") until such time that the Company offers its shares in a
Public Offering. The period extending up to the Public Offering shall be
referred to as the "Private Term" and any subsequent period until the options
expire as the "Public Term." The term "Public Offering" means a public offering
of the Company's common stock of the same series as underlies options issued
under the Option Plan, which is registered on Form S-1 promulgated by the
Securities and Exchange Commission (or any successor form adopted after the date
of the Option Plan), is firmly underwritten pursuant to an agreement with one or
more nationally recognized or regionally recognized underwriting firms, and
results in gross aggregate proceeds, before deducting underwriting discounts and
expenses, of at least $10 million payable to the Company and to the Company's
shareholders.
(b) In the event the Company offers its shares in a Public Offering,
the Option Plan will be administered by a committee consisting entirely of
directors qualifying as "disinterested persons"
<PAGE>
as such term is defined in Rule 16b-3 promulgated by the Securities and Exchange
Commission (the "Committee"). The Committee shall consist of at least two
persons. Members of the Committee shall serve at the pleasure of the Board. From
and after the date on which the Stock is registered under Section 12(g) of the
Securities Exchange Act of 1934 (the "1934 Act Effective Date") whether before
or after completion of a Public Offering, none of the members of the Committee
shall receive, while serving on the Committee, or with respect to any member of
the Committee appointed after the 1934 Act Effective Date, during the lesser of
(i) the one year period preceding appointment to the Committee and (ii) the
period commencing on the 1934 Act Effective Date and terminating on the date of
appointment to the Committee, a grant or award of equity securities under [x]
the Option Plan or [y] any other plan of the Company or its Affiliates under
which the participants are entitled to acquire Stock (including restricted
Stock), stock options, stock bonuses, related rights or stock appreciation
rights of the Company or any of its Affiliates, other than pursuant to
transactions in any such other plan which do not disqualify a director from
being a disinterested person under Rule 16b-3.
(c) The Board or the Committee may from time to time determine which
employees and consultants of the Company or of its Affiliates shall be granted
options under the Option Plan, the terms thereof (including without limitation
determining whether the option is an incentive stock option and the times at
which the options shall become exercisable), and the number of shares for which
an option or options may be granted.
(d) If the Company has a right of first refusal to purchase Stock
whether pursuant to Section 9 of this Option Plan or otherwise, the certificates
therefor shall have imprinted or typed thereon a legend or legends summarizing
or referring to such right.
(e) The Board or the Committee shall have the sole authority, in its
absolute discretion, to adopt, amend and rescind such rules and regulations,
consistent with the provisions of the Option Plan, as, in its opinion, may be
advisable in the administration of the Option Plan, to construe and interpret
the Option Plan, the rules and regulations, and the instruments evidencing
options granted under the Option Plan and to make all other determinations
deemed necessary or advisable for the administration of the Option Plan. All
decisions, determinations and interpretations of the Board or the Committee
shall be binding on all Participants in the Option Plan.
3. Stock Subject to the Plan.
-------------------------
(a) "Stock" shall mean Common Stock of the Company or such stock as
may be changed as contemplated by Section 3(c) below. Stock shall include
shares drawn from either the Company's authorized but unissued shares of Common
Stock or from reacquired shares of Common Stock, including without limitation
shares repurchased by the Company in the open market.
(b) Options may be granted under the Option Plan from time to time to
eligible persons to purchase an aggregate of up to 2,900,000 shares of Stock.
Stock options awarded pursuant to the Option Plan which are forfeited,
terminated, surrendered or cancelled for any reason prior to
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<PAGE>
exercise shall again become available for grants under the Option Plan
(including any option cancelled in accordance with the cancellation/re-grant
provisions of Section 6(e) herein).
(c) If there shall be any change in the Stock subject to the Option
Plan, including Stock subject to any option granted hereunder, through merger,
consolidation, recapitalization, reorganization, reincorporation, stock split,
reverse stock split, stock dividend, combination or reclassification of the
Company's Stock or other similar events, an appropriate adjustment shall be made
by the Board or the Committee in the number of shares and/or the option price
with respect to any unexercised shares of Stock. Consistent with the foregoing,
in the event that the outstanding Stock is changed into another class or series
of capital stock of the Company, outstanding options to purchase Stock granted
under the Option Plan shall become options to purchase such other class or
series and the provisions of this Section 3(c) shall apply to such new class or
series.
(d) the Company may grant options under the Option Plan in
substitution for options held by employees of another company who become
employees of the Company as a result of merger or consolidation. The Company
may direct that substitute options be granted on such terms and conditions as
deemed appropriate by the Board or the Committee.
(e) the aggregate number of shares approved for issuance pursuant to
the Option Plan may not be exceeded without amending the Option Plan and
obtaining shareholder approval within twelve months of such amendment.
4. Eligibility.
-----------
Persons who shall be eligible to receive stock options granted under
the Option Plan shall be those employees, directors, and consultants as the
Board or the Committee in its discretion determines should be awarded such
incentives given the best interests of the Company; provided, however, that (i)
ISOs may only be granted to employees of the Company and its Affiliates and (ii)
any person holding capital stock possessing more than 10% of the total combined
voting power of all classes of Stock of the Company or any Affiliate shall not
be eligible to receive ISOs unless the exercise price per share of Stock is at
least 110% of the fair market value of the Stock on the date the option is
granted.
5. Exercise Price for Options Granted under the Plan.
-------------------------------------------------
(a) All ISOs and NSOs will have per share exercise prices as
determined by the Board, subject to the following:
(i) NSOs shall not be granted at exercise prices per share less
than 85% of the per-share fair market value of the Stock on the date of grant.
(ii) ISOs shall not be granted at exercise prices per share less
than 100% of such fair market value.
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<PAGE>
(iii) No ISOs or NSOs shall be granted under the Option Plan to
any person possessing more than 10% of the total combined voting power of all
classes of stock of the Company or any Affiliate at exercise prices per share
less than 110% of such fair market value.
(iv) The exercise prices of all ISOs or NSOs granted under the
Option Plan shall be subject to adjustment to the extent provided in Section
3(c), above.
(b) Fair market value of the Common Stock on the grant date shall be
determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, its fair market value shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or system for the last market trading day
prior to the time of determination, as reported in The Wall Street Journal or
such other source as the Board of Directors deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but not
on the Nasdaq National Market thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its fair market value
shall be the mean between the high bid and low asked prices for the Common Stock
on the last market trading day prior to the day of determination, or;
(ii) In the absence of an established market for the Common
Stock, the fair market value thereof shall be determined in good faith by the
Board of Directors.
6. Terms and Conditions of Options.
-------------------------------
(a) Each option granted pursuant to the Option Plan shall be evidenced
by a written stock option agreement (the "Option Agreement") executed by the
Company and the person to whom such option is granted. The option agreement
shall designate whether the option is an ISO or an NSO.
(b) The term of each ISO and each NSO shall be no more than 10 years,
except that the term of each ISO issued to any person possessing more than 10%
of the voting power of all classes of stock of the Company or any Affiliate
shall be no more than 5 years.
(c) In the case of ISOs, the aggregate fair market value (determined
as of the time such option is granted) of the Stock as to which ISOs are
exercisable for the first time by such individual during any calendar year
(under this Option Plan and any other plans of the Company or its Affiliates, if
any) shall not exceed the amount specified in Section 422(d) of the Code, or any
successor provision in effect at the time an ISO becomes exercisable.
-4-
<PAGE>
(d) Notwithstanding the designation of an option as an ISO in an
Option Agreement, such designations, to the extent that the aggregate fair
market value:
(i) of Stock subject to a Participant's ISO granted by the
Company, any Parent or Subsidiary, which
(ii) become exercisable for the first time during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess options shall be treated as NSOs. For purposes of this
Section 6(d), ISOs shall be taken into account in the order in which they were
granted, and the fair market value of the Stock shall be determined as of the
time the option with respect to such Stock is granted.
(e) The Option Agreement may contain such other terms, provisions and
conditions regarding vesting, repurchase or other similar provisions, to the
extent consistent with the Option Plan, as may be determined by the Board or the
Committee. If an option, or any part thereof, is intended to qualify as an ISO,
the Option Agreement shall contain those terms and conditions which the Board or
the Committee determine are necessary to so qualify under Section 422 of the
Code. Should any provision of the Option Plan or the Option Agreement of any
option intended to qualify as an ISO conflict with the Code such that the option
would not so qualify, the Option Plan or Option Agreement, as the case may be,
shall be deemed automatically modified to the minimum extent necessary in order
for such option to so qualify.
(f) The Board or the Committee shall have full power and authority to
effect at any time and from time to time, with the consent of the affected
Participants, the cancellation of any or all outstanding options under the
Option Plan and to grant in substitution new options under the Option Plan
covering the same or different numbers of shares of Stock with the same or
different exercise prices.
(g) As a condition to option grants under the Option Plan, the
Participant agrees to grant the Company the repurchase rights contained in
Section 9 of this Option Plan.
(h) All options must become exercisable for Participants at least
twenty percent (20%) per year over the first five years from the date they are
granted. Except as otherwise provided herein or in the Option Agreement, an
exercisable option may be exercised at any time before the earlier of (i) the
expiration date of the option or (ii) 120 months after the date of grant.
(i) In the event of termination of a Participant's status as an
employee or consultant of the Company (but not in the event of a Participant's
change of status from employee to consultant (in which case a Participant's ISO
shall automatically convert to an NSO on the ninety-first (91st) day following
such change of status) or from consultant to employee), such Participant may
exercise his or her options, to the extent the Participant was entitled to
exercise such options at the date of such termination, during the period of time
determined by the Board. Such period of time shall be at least 30 days. In the
case of ISOs, such period shall be no longer than 90 days. In the case of NSOs,
such period of time shall be no longer than 180 days. However, in the case of
all ISOs and NSOs granted prior to
-5-
<PAGE>
the date on which this Amended and Restated Option Plan is adopted by the Board,
such period of time shall be 30 days. In no event shall options be exercisable
later than the expiration date set forth in the Option Agreement relating to
such options. To the extent that a Participant was not entitled to exercise an
option at the date of such termination, or if Participant does not exercise such
option to the extent so entitled within the time specified herein, such option
shall terminate.
(j) In the event of termination of a Participant's status as an
employee or consultant of the Company as a result of his or her disability, a
Participant may, but only within twelve (12) months from the date of such
termination, or, in the case of options granted before the Board adopts this
Amended and Restated Option Plan, six (6) months, (and in no event later than
the expiration date of the term of such options as set forth in the Option
Agreement), exercise the options to the extent otherwise exercisable at the date
of such termination; provided, however, that if such disability is not a
"disability" as such term is defined in Section 22(e)(3) of the Code, in the
case of an ISO such ISO shall automatically convert to an NSO on the day three
months and one day following such termination. To the extent that Participant is
not entitled to exercise the options at the date of termination, or if
Participant does not exercise such options to the extent so entitled within the
time specified herein, the options shall terminate.
(k) In the event of the death of a Participant, the options may be
exercised at any time within twelve (12) months or, in the case of options
granted before the Board adopts this Amended and Restated Option Plan, six (6)
months, following the date of death (but in no event later than the expiration
of the term of such options), by the Participant's estate or by a person who
acquired the right to exercise the options by bequest or inheritance, but only
to the extent that the Participant was entitled to exercise the options at the
date of death. If, after death, the Participant's estate or a person who
acquired the right to exercise the options by bequest or inheritance does not
exercise the options within the time specified herein, the options shall
terminate.
(l) No fractional shares shall be issued under the Option Plan,
whether by initial grants or any adjustments to the Option Plan.
7. Use of Proceeds.
---------------
Cash proceeds realized from the sale of Stock under the Option Plan
shall constitute general funds of the Company.
8. Amendment, Suspension or Termination of the Plan.
------------------------------------------------
(a) The Board may at any time suspend or terminate the Option Plan,
and may amend it from time to time in such respects as the Board may deem
advisable provided that (i) such amendment, suspension or termination complies
with all applicable state and federal requirements and requirements of any stock
exchange on which the Stock is then listed, including any applicable requirement
that the Option Plan or an amendment to the Option Plan be approved by the
shareholders, and (ii) the Board
-6-
<PAGE>
shall not amend the Option Plan to increase the maximum number of shares subject
to ISOs under the Option Plan or to change the description or class of persons
eligible to receive ISOs under the Option Plan without the consent of the
shareholders of the Company sufficient to approve the Option Plan in the first
instance. The Option Plan shall terminate on the earlier of (i) ten (10) years
from the latest date on which the Option Plan or an amendment thereto is
approved by the Company's shareholders or (ii) the date on which no additional
shares of stock are available for issuance under the Option Plan.
(b) Any amendment or termination of the Option Plan shall not affect
options already granted, and such options shall remain in full force and effect
as if this Option Plan had not been amended or terminated, unless mutually
agreed otherwise between the optionee and the Board, which agreement must be in
writing and signed by the Participant and the Company.
9. Repurchase.
----------
If a holder of options who is an employee at the date of grant
terminates employment at any time during the Private Term, with or without
cause, the Company shall have a freely assignable option exercisable at any time
within three months following the date of termination to repurchase any shares
held as a consequence of the exercise of the options before or after
termination. The Company may exercise its options at any time during the three-
month period by delivering to the holder a written notice of exercise (the
"Notice of Exercise"). The Company's Notice of Exercise shall set forth the
Company's intention to repurchase the shares and shall contain a statement of
the repurchase price, in accordance with the following provisions of this
Section 9. The Company's statement of the repurchase price shall be final and
binding upon the holder, unless within thirty days following the date of the
Notice of Exercise the holder shall deliver to the Company a written notice
objecting to the statement and setting forth in reasonable detail the basis for
the objection (an "Objection Notice"). If the holder issues an Objection
Notice, the parties shall meet promptly thereafter to resolve their differences,
and in the absence of a resolution of the matter within an additional thirty
days following the date of the Objection Notice, either party may elect to
submit the matter of the repurchase price to arbitration in accordance with the
provisions of the Option Agreement. Upon the earliest of (i) the lapse of
thirty days following the issuance of a Notice of Objection without an
intervening Objection Notice, (ii) a written agreement between the Company and
the holder as to the proper repurchase price or (iii) a final award in
arbitration, the Company or its assignee shall pay the repurchase price to the
holder and title to the repurchased shares shall pass to the Company or its
assignee, as the case may be. Notwithstanding the foregoing, the Company shall
be entitled to withdraw its Notice of Exercise at any time up to the date when
shares are actually purchased by the Company or its assignee. All shares issued
upon the exercise of options shall be legended to reflect the existence of this
option, which will be binding on the original optionee and any subsequent holder
of the shares other than the Company or any assignee acquiring the shares
following a Notice of Exercise. The repurchase price shall be the higher of the
original exercise price or fair market value as of the date of termination, as
determined by the Board of Directors of the Company. If the Company or its
assignee does not exercise the right of repurchase within the three-month
period, the holder of the shares shall be entitled to retain the shares free and
clear of any and all claims by the Company pursuant to this Section 9 and shall
be entitled to have the legend which refers
-7-
<PAGE>
to the Company's option to repurchase the shares removed from the certificate
representing the shares. The Company shall have no repurchase rights once the
Public Term begins. In the discretion of the Board or the Committee, the Company
may or may not have repurchase rights with respect to options granted to persons
who were not employees on the date of grant.
10. Right of First Refusal.
----------------------
At the discretion of the Board or the Committee at the time the
options are granted, the transferability of shares issued pursuant to the
exercise of options may be restricted such that they may not be transferred to a
third party without first being offered to the Company at the same price and
terms upon which the Participant proposes to sell them to the third party, or
upon such other terms and conditions as the Board may deem appropriate. The
Company must exercise its option to purchase such shares within 30 days of
notice by the Participant that he or she proposes to sell the shares. The
Company may assign its rights under this paragraph to any person, including
shareholders in the Company. The Company will have no purchase right pursuant
to this paragraph once the Public Term begins.
11. Assignability of Options and Rights.
-----------------------------------
Each option granted pursuant to this Option Plan shall, during the
Participant's lifetime, be exercisable only by the Participant, and neither the
option nor any right to purchase Stock shall be transferred, assigned or pledged
by the Participant, by operation of law or otherwise, other than by will upon a
beneficiary designation executed by the optionee and delivered to the Company or
the laws of descent and distribution.
12. Payment Upon Exercise.
---------------------
Payment of the purchase price upon exercise of any option or right to
purchase Stock granted under this Option Plan shall be made by giving the
Company written notice of such exercise, specifying the number of such shares as
to which the option is exercised. Such notice shall be accompanied by payment
of an amount equal to the Option Price of such shares. Such payment may be (i)
cash, (ii) check drawn against sufficient funds, (iii) delivery to the Company
of the Participant's promissory note, in which event the Participant must be an
employee or director of the Company, (iv) other Stock which (x) in the case of
Stock acquired upon exercise of options have been owned by the Participant for
more than six months on the date of surrender and (y) have a fair market value
on the date of surrender equal to the aggregate exercise price of the Stock as
to which said options shall be exer cised, (v) such other consideration as the
Board, in its sole discretion, determines and is consistent with the Option
Plan's purpose and applicable law, or (vi) in any combination of the foregoing.
Any Stock used to exercise options shall be valued in accordance with procedures
established by the Board. Any note used to exercise options to purchase Stock
shall be a full recourse, interest-bearing obligation secured by shares in the
Company and containing such terms as the Committee shall determine. If a note
is used to exercise options, the optionee agrees to execute such further
documents as the Company may deem necessary or appropriate in connection with
issuing the note, perfecting a security interest in the
-8-
<PAGE>
stock purchased with the note and any related terms the Company may propose.
Such further documents may include, without limitation, a security agreement, an
escrow agreement, and an assignment separate from certificate. If accepted by
the Committee in its discretion, such consideration also may be paid through a
broker-dealer sale and remittance procedure pursuant to which the Participant
(a) shall provide irrevocable written instructions to a designated brokerage
firm to effect the immediate sale of the purchased shares and remit to the
Company, out of the sale proceeds available on the settlement date, sufficient
funds to cover the aggregate option price payable for the purchased shares plus
all applicable Federal and State income and employment taxes required to be
withheld by the Company in connection with such purchase and (b) shall provide
written directives to the Company to deliver the certificates for the purchased
shares directly to such brokerage firm in order to complete the sale
transaction.
13. Withholding Taxes.
-----------------
(a) Shares of Stock issued hereunder shall be delivered to a
Participant only upon payment by such person to the Company of the amount of any
withholding tax required by applicable federal, state, local or foreign law.
The Company shall not be required to issue any Stock to a Participant until such
obligations are satisfied.
14. Ratification.
------------
This Option Plan and all options issued under this Option Plan shall
be void unless this Option Plan is approved or ratified by (i) the Board; and
(ii) a majority of the votes cast at a shareholder meeting at which a quorum
representing at least a majority of the outstanding shares of Stock is (either
in person or by proxy) present and voting on the Option Plan within twelve
months of the date this Option Plan is adopted by the Board. No ISOs shall be
exercisable prior to the date such shareholder approval is obtained.
15. Corporate Transactions.
----------------------
(a) For the purpose of this Section 15, a "Corporate Transaction"
shall include any of the following shareholder-approved transactions to which
the Company is a party:
(i) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the state of the Company's incorporation;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company in liquidation or dissolution of
the Company; or
(ii) any reverse merger in which the Company is the surviving
entity but in which securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities are
transferred to holders different from those who held such securities immediately
prior to such merger.
-9-
<PAGE>
(b) Upon the occurrence of a Corporate Transaction, if the surviving
corporation or the purchaser (the "Surviving Corporation"), as the case may be,
does not assume or provide a substitute for the obligations of the Company under
the Option Plan, then irrespective of the vesting provisions contained in
individual option agreements, all outstanding options shall immediately become
fully vested and exercisable, including for shares of Stock as to which such
options would not otherwise be vested and exercisable.
(c) To the extent that the Option Plan is unaffected and assumed by
the Surviving Corporation or its parent company, a Corporate Transaction shall
have no effect on outstanding options, and these options shall continue in
effect according to their terms. Each outstanding option under this Option Plan
which is assumed in connection with the Corporate Transaction or is otherwise to
continue in effect shall be appropriately adjusted, immediately after such
Corporate Transaction, to apply and pertain to the number and class of
securities which would have been issued to the Participant in connection with
the consummation of such Corporate Transaction had such person exercised the
option immediately prior to such Corporate Transaction. Appropriate adjustments
shall also be made to the option price payable per share, provided the aggregate
option price payable for such securities shall remain the same. In addition,
the class and number of securities available for issuance under this Option Plan
following the consummation of the Corporate Transaction shall be appropriately
adjusted. Furthermore, if the Participant's status as an employee of the Company
or employee of the Surviving Corporation, as applicable, is terminated by the
Successor Corporation as a result of an Involuntary Termination (as defined
below) other than for Cause (as defined below) within twelve months following a
Corporate Transaction, the Participant shall fully vest in and have the right to
exercise all his or her outstanding options, including for shares of Stock as to
which such options would not otherwise be vested or exercisable. Thereafter,
the option shall remain exercisable in accordance with Sections 6(i) through (k)
above.
For purposes of this section, any of the following events shall
constitute an "Involuntary Termination": (i) a significant reduction of the
Participant's duties, authority or responsibilities, relative to the
Participant's duties, authority or responsibilities as in effect immediately
prior to the Corporate Transaction, or the assignment to Participant of such
reduced duties, authority or responsibilities; (ii) a substantial reduction of
the facilities and perquisites (including office space and location) available
to the Participant immediately prior to the Corporate Transaction; (iii) a
reduction in the base salary of the Participant as in effect immediately prior
to the Corporate Transaction; (iv) a material reduction in the kind or level of
employee benefits, including bonuses, to which the Participant was entitled
immediately prior to the Corporate Transaction with the result that the
Participant's overall benefits package is sig nificantly reduced; (v) the
relocation of the Participant to a facility or a location more than fifty (50)
miles from the Participant's then present location, without the Participant's
express written consent; (vi) any purported termination of the Participant by
the Surviving Corporation which is not effected for disability or for Cause, or
any purported termination for which the grounds relied upon are not valid; (vii)
or any act or set of facts or circumstances which would, under California case
law or statute constitute a constructive termination of the Participant.
-10-
<PAGE>
For purposes of this section, "Cause" shall mean (i) any act of
personal dishonesty taken by the Participant in connection with his
responsibilities as an employee and intended to result in substantial personal
enrichment of the Participant, (ii) the conviction of a felony, (iii) a willful
act by the Participant which constitutes gross misconduct and which is injurious
to the Surviving Corporation, and (iv) following delivery to the Participant of
a written demand for performance from the Surviving Corporation which describes
the basis for the Surviving Corporation's belief that the Participant has not
substantially performed his duties, continued violations by the Participant of
the Participant's obligations to the Surviving Corporation which are
demonstrably willful and deliberate on the Participant's part.
(d) The grant of options under this Option Plan shall in no way affect
the right of the Company to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
16. Loans or Guarantee of Loans.
---------------------------
(a) The Board or the Committee may, in its absolute discretion, assist
any Participant in the exercise of options granted under this Option Plan,
including the satisfaction of any Federal and State income and employment tax
obligations arising therefrom by (i) authorizing the extension of a loan from
the Company to such Participant, (ii) permitting the Participant to pay the
exercise price for the Stock in installments over a period of years or (iii)
authorizing a guarantee by the Company of a third party loan to the Participant.
The terms of any loan, installment method of payment or guarantee (including the
interest rate and terms of repayment) will be upon such terms as the Board or
the Committee specifies in the applicable option or issuance agreement or
otherwise deems appropriate under the circumstances. Loans, installment
payments and guarantees may be granted with or without security or collateral
(other than to Participants who are not employees, in which event the loan must
be adequately secured by collateral other than the purchased shares). However,
the maximum credit available to the Participant may not exceed the exercise or
purchase price of the acquired shares of Stock plus any Federal and State income
and employment tax liability incurred by the Participant in connection with the
acquisition of such shares of Stock.
(b) The Board or the Committee may, in its absolute discretion,
determine that one or more loans extended under this financial assistance
program shall be subject to forgiveness by the Company in whole or in part upon
such terms and conditions as the Board or the Committee may deem appropriate.
17. Regulatory Approvals.
--------------------
The obligation of the Company with respect to common shares issued
under the Plan shall be subject to all applicable laws, rules and regulations
and such approvals by any governmental agencies or stock exchanges as may be
required. The Company reserves the right to restrict, in whole or in part, the
delivery of common shares under the Plan until such time as any legal
requirements or regulations have been met relating to the issuance of common
shares, to their registration or qualification under the
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<PAGE>
Securities Exchange Act of 1934, if applicable, or any applicable state
securities laws, or to their listing on any stock exchange at which time such
listing may be applicable.
18. No Employment/Service Rights.
----------------------------
Neither the action of the Company in establishing this Option Plan,
not any action taken by the Board or the Committee hereunder, nor any provision
of this Option Plan shall be construed so as to grant any individual the right
to remain in the employ or service of the Company (or any parent, subsidiary or
affiliated corporation) for any period of specific duration, and the Company (or
any parent, subsidiary or affiliated corporation retaining the services of such
individual) may terminate such individual's employment or service at any time
and for any reason, with or without cause.
19. Information to Participants. The Company shall provide to each
---------------------------
Participant, not less frequently than annually, copies of annual financial
statements. The Company shall also provide such statements to each individual
who acquires Stock pursuant to the Option Plan while such individual owns such
Stock. The Company shall not be required to provide such statements to key
employees whose duties in connection with the Company assure their access to
equivalent information.
20. Miscellaneous Provisions.
------------------------
(a) The right to acquire Stock or other assets under this Option Plan
may not be assigned, encumbered or otherwise transferred by any Participant
except as specifically provided herein.
(b) The provisions of this Option Plan shall be governed by the laws
of the State of California, as such laws are applied to contracts entered into
and performed in such State.
(c) The provisions of this Option Plan shall inure to the benefit of,
and be binding upon, the Company and its successors or assigns, whether by
Corporate Transaction or otherwise, and the Participants, the legal
representatives of their respective estates, their respective heirs or legatees
and their permitted assignees.
(d) The Participants shall have no dividend rights, voting rights or
any other rights as a stockholder with respect to any options under the Option
Plan prior to the issuance of a stock certificate for such Stock.
-12-
<PAGE>
EXHIBIT 4.04
INSYNC SYSTEMS, INC.
1997 STOCK PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are:
--------------------
. to attract and retain the best available personnel for positions
of substantial responsibility,
. to provide additional incentive to Employees, Directors and
Consultants, and
. to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan. The Plan also
provides for automatic grants of Nonstatutory Stock Options to Outside
Directors.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as shall
-------------
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
---------------
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means a committee of Directors appointed by the Board
---------
in accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
------------
(g) "Company" means Insync Systems, Inc., a California corporation.
-------
(h) "Consultant" means any person, including an advisor, engaged by
----------
the Company or a Parent or Subsidiary to render services to such entity.
<PAGE>
(i) "Director" means a member of the Board.
--------
(j) "Disability" means total and permanent disability as defined in
----------
Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(m) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
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<PAGE>
(o) "Inside Director" means a Director who is an Employee.
---------------
(p) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(q) "Notice of Grant" means a written or electronic notice evidencing
---------------
certain terms and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.
(r) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(s) "Option" means a stock option granted pursuant to the Plan.
------
(t) "Option Agreement" means an agreement between the Company and an
----------------
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(u) "Option Exchange Program" means a program whereby outstanding
-----------------------
Options are surrendered in exchange for Options with a lower exercise price.
(v) "Optioned Stock" means the Common Stock subject to an Option or
--------------
Stock Purchase Right.
(w) "Optionee" means the holder of an outstanding Option or Stock
--------
Purchase Right granted under the Plan.
(x) "Outside Director" means a Director who is not an Employee.
----------------
(y) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(z) "Plan" means this 1997 Stock Plan.
----
(aa) "Restricted Stock" means shares of Common Stock acquired pursuant
----------------
to a grant of Stock Purchase Rights under Section 11 of the Plan.
(bb) "Restricted Stock Purchase Agreement" means a written agreement
-----------------------------------
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
-3-
<PAGE>
(cc) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
----------
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(dd) "Section 16(b)" means Section 16(b) of the Exchange Act.
-------------
(ee) "Service Provider" means an Employee, Director or Consultant.
----------------
(ff) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 14 of the Plan.
(gg) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(hh) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 14 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is (a) 200,000 Shares, (b) the number of Shares reserved but
unissued under the Company's 1993 Stock Option Plan (as amended and restated)
(the "1993 Plan") as of the date of shareholder approval of this Plan and any
Shares returned to the 1993 Plan as a result of termination of options under the
1993 Plan, plus (c) an annual increase to be added on January 1 of each year
equal to the lesser of (i) 500,000 shares, (ii) 2.5% of the outstanding shares
on such date or (iii) a lesser amount determined by the Board. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
--------
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Multiple Administrative Bodies. The Plan may be
------------------------------
administered by different Committees with respect to different groups of
Service Providers.
(ii) Section 162(m). To the extent that the Administrator
--------------
determines it to
-4-
<PAGE>
be desirable to qualify Options granted hereunder as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the Plan shall
be administered by a Committee of two or more "outside directors" within the
meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
----------
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Grants to Outside Directors. All grants of Options to
---------------------------
Outside Directors made pursuant to Section 12 of the Plan shall be automatic and
nondiscretionary.
(v) Other Administration. Other than as provided above, the
--------------------
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option or Stock Purchase Right granted
hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the time or times when Options or Stock Purchase Rights may be
exercised (which may be based on performance criteria), any vesting acceleration
or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or Stock Purchase Right or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
-5-
<PAGE>
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 16(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having a
Fair Market Value equal to the amount required to be withheld. The Fair Market
Value of the Shares to be withheld shall be determined on the date that the
amount of tax to be withheld is to be determined. All elections by an Optionee
to have Shares withheld for this purpose shall be made in such form and under
such conditions as the Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
----------------------------------
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may
-----------
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
6. Limitations.
-----------
(a) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options
-6-
<PAGE>
shall be taken into account in the order in which they were granted. The Fair
Market Value of the Shares shall be determined as of the time the Option with
respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year
of the Company, Options to purchase more than 750,000 Shares.
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 750,000 Shares
which shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 14.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 14), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 20 of the Plan, the Plan shall
------------
become effective upon its adoption by the Board. It shall continue in effect
for a term of ten (10) years unless terminated earlier under Section 16 of the
Plan.
8. Term of Option. The term of each Option shall be stated in the Option
--------------
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.
9. Option Exercise Price and Consideration.
---------------------------------------
(a) Exercise Price. The per share exercise price for the Shares to
--------------
be issued
-7-
<PAGE>
pursuant to exercise of an Option shall be determined by the Administrator,
subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price of less than 100% of the Fair Market Value per Share
on the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
---------------------------------
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
---------------------
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
-8-
<PAGE>
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives: (i)
written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 14 of the Plan.
Exercising an Option in any manner shall decrease the number of Shares
thereafter available, both for purposes of the Plan and for sale under the
Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an
-------------------------------------------------
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent
-9-
<PAGE>
that the Option is vested on the date of termination (but in no event later than
the expiration of the term of such Option as set forth in the Option Agreement).
In the absence of a specified time in the Option Agreement, the Option shall
remain exercisable for three (3) months following the Optionee's termination.
If, on the date of termination, the Optionee is not vested as to his or her
entire Option, the Shares covered by the unvested portion of the Option shall
revert to the Plan. If, after termination, the Optionee does not exercise his or
her Option within the time specified by the Administrator, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
----------------------
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider,
-----------------
the Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or
administrator of the Optionee's estate or, if none, by the person(s) entitled to
exercise the Option under the Optionee's will or the laws of descent or
distribution. If the Option is not so exercised within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to
-----------------
buy out for a payment in cash or Shares an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the
-10-
<PAGE>
Plan, it shall advise the offeree in writing or electronically, by means of a
Notice of Grant, of the terms, conditions and restrictions related to the offer,
including the number of Shares that the offeree shall be entitled to purchase,
the price to be paid, and the time within which the offeree must accept such
offer. The offer shall be accepted by execution of a Restricted Stock Purchase
Agreement in the form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines
-----------------
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 14
of the Plan.
12. Automatic Option Grants to Outside Directors. All grants of Options
--------------------------------------------
to Outside Directors pursuant to this Section shall be automatic and
nondiscretionary and shall be made strictly in accordance with the following
provisions:
(a) All Options granted pursuant to this Section shall be
Nonstatutory Stock Options and, except as otherwise provided herein, shall be
subject to the other terms and conditions of the Plan.
(b) No person shall have any discretion to select which Outside
Directors shall be granted Options under this Section or to determine the number
of Shares to be covered by such Options.
(c) Each person who first becomes an Outside Director following the
effective date of this Plan, as determined in accordance with Section 7 hereof,
shall be automatically granted an Option to purchase [_____] Shares (the "First
Option") or the date on which such person first becomes an Outside Director,
whether through election by the shareholders of the Company or appointment by
the Board to fill a vacancy; provided, however, that an Inside Director who
ceases to be an Inside Director but who remains a Director shall not receive a
First Option.
-11-
<PAGE>
(d) Each Outside Director shall be automatically granted an Option to
purchase [_____] Shares (a "Subsequent Option") on the date of the Company's
annual meeting of the stockholders each year; provided he or she is then an
Outside Director and, if as of such date, he or she shall have served on the
Board for at least the preceding six (6) months.
(e) Notwithstanding the provisions of subsections (ii) and (iii)
hereof, any exercise of an Option granted before the Company has obtained
shareholder approval of the Plan in accordance with Section 20 hereof shall be
conditioned upon obtaining such shareholder approval of the Plan in accordance
with Section 20 hereof.
(f) The terms of each Option granted pursuant to this Section shall
be as follows:
(i) the term of the Option shall be ten (10) years.
(ii) Notwithstanding any other provision of the Plan or the
cessation of the Outside Director's status as a Service provider, an Option
granted to an Outside Director pursuant to this Section 12 shall continue to
vest and become exercisable pursuant to Section 12(f)(iv), and shall remain
exercisable for the term set forth in Section 12(f)(i).
(iii) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the Option.
(iv) subject to Section 14 hereof, the Option shall vest and
become exercisable as to 25% of the Shares subject to the Option on the first
anniversary of its date of grant, and as to 1/48th of the Shares subject to the
Option each month thereafter, such that all Shares subject to the Option shall
be vested and exercisable four (4) years from the date of grant of the Option.
13. Non-Transferability of Options and Stock Purchase Rights. Unless
--------------------------------------------------------
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
-12-
<PAGE>
14. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
------------------------------------------------------------------
Asset Sale.
----------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation, or the sale of substantially all of the assets
of the Company (a "Merger"), each outstanding Option and Stock Purchase Right
shall be assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation (the
"Successor Corporation").
Following such assumption or substitution in connection with a Merger,
if the Optionee's status as an Employee or employee of the Successor
Corporation, as applicable, is terminated by the Successor Corporation as a
result of an Involuntary Termination (as defined below) other than for Cause (as
defined below) within twelve months following a Merger, the
-13-
<PAGE>
Optionee shall fully vest in and have the right to exercise the Option or Stock
Purchase Right as to all of the Optioned Stock , including Shares as to which
Optionee would not otherwise be vested or exercisable. Thereafter, the Option or
Stock Purchase Right shall remain exercisable in accordance with Sections 10(b)
through (d) above.
For purposes of this section, any of the following events shall
constitute an "Involuntary Termination": (i) a significant reduction of the
Employee's duties, authority or responsibilities, relative to the Employee's
duties, authority or responsibilities as in effect immediately prior to the
Merger, or the assignment to Employee of such reduced duties, authority or
responsibilities; (ii) a substantial reduction of the facilities and perquisites
(including office space and location) available to the Employee immediately
prior to the Merger; (iii) a reduction in the base salary of the Employee as in
effect immediately prior to the Merger; (iv) a material reduction in the kind or
level of employee benefits, including bonuses, to which the Employee was
entitled immediately prior to the Merger with the result that the Employee's
overall benefits package is significantly reduced; (v) the relocation of the
Employee to a facility or a location more than fifty (50) miles from the
Employee's then present location, without the Employee's express written
consent; (vi) any purported termination of the Employee by the Successor
Corporation which is not effected for Disability or for Cause, or any purported
termination for which the grounds relied upon are not valid; (vii) or any act or
set of facts or circumstances which would, under California case law or statute
constitute a constructive termination of the Employee.
For purposes of this section, "Cause" shall mean (i) any act of
personal dishonesty taken by the Employee in connection with his
responsibilities as an employee and intended to result in substantial personal
enrichment of the Employee, (ii) the conviction of a felony, (iii) a willful act
by the Employee which constitutes gross misconduct and which is injurious to the
Successor Corporation, and (iv) following delivery to the Employee of a written
demand for performance from the Successor Corporation which describes the basis
for the Successor Corporation's belief that the Employee has not substantially
performed his duties, continued violations by the Employee of the Employee's
obligations to the Successor Corporation which are demonstrably willful and
deliberate on the Employee's part.
In the event that the Successor Corporation refuses to assume or
substitute for the Option or Stock Purchase Right, the Optionee shall fully vest
in and have the right to exercise the Option or Stock Purchase Right as to all
of the Optioned Stock, including Shares as to which Optionee would not otherwise
be vested or exercisable. If an Option or Stock Purchase Right becomes fully
vested and exercisable in lieu of assumption or substitution in connection with
a Merger, the Administrator shall notify the Optionee in writing that the Option
or Stock Purchase Right shall be fully vested and exercisable for a period of
fifteen (15) days from the date of such notice, and the Option or Stock Purchase
Right shall terminate upon the expiration of such period. For the purposes of
this paragraph, the Option or Stock Purchase Right shall be considered assumed
if, following the Merger, the option or right confers the right to purchase or
receive, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right immediately prior to the Merger,
-14-
<PAGE>
the consideration (whether stock, cash, or other securities or property)
received in the Merger by holders of Common Stock for each Share held on the
effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such consideration received
in the Merger is not solely common stock of the Successor Corporation or its
Parent, the Administrator may, with the consent of the Successor Corporation,
provide for the consideration to be received upon the exercise of the Option or
Stock Purchase Right, for each Share of Optioned Stock subject to the Option or
Stock Purchase Right, to be solely common stock of the Successor Corporation or
its Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the Merger.
15. Date of Grant. The date of grant of an Option or Stock Purchase Right
-------------
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall
be provided to each Optionee within a reasonable time after the date of such
grant.
16. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
--------------------
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
17. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the
----------------
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
--------------------------
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being
-15-
<PAGE>
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.
18. Inability to Obtain Authority. The inability of the Company to obtain
-----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
19. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
20. Shareholder Approval. The Plan shall be subject to approval by the
--------------------
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
-16-
<PAGE>
INSYNC SYSTEMS, INC.
1997 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
----------------------------
[OPTIONEE'S NAME AND ADDRESS]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number _________________________
Date of Grant _________________________
Vesting Commencement Date _________________________
Exercise Price per Share $________________________
Total Number of Shares Granted _________________________
Total Exercise Price $________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: _________________________
Vesting Schedule:
----------------
This Option may be exercised, in whole or in part, in accordance with the
following schedule:
25% of the Shares subject to the Option shall vest twelve months after the
Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall
vest each month thereafter, subject to the Optionee continuing to be a Service
Provider on such dates.
<PAGE>
Termination Period:
------------------
This Option may be exercised for ninety (90) days after Optionee ceases to
be a Service Provider. Upon the death or Disability of the Optionee, this
Option may be exercised for one year after Optionee ceases to be a Service
Provider. In no event shall this Option be exercised later than the
Term/Expiration Date as provided above.
II. AGREEMENT
---------
1. Grant of Option. The Plan Administrator of the Company hereby grants
---------------
to the Optionee named in the Notice of Grant attached as Part I of this
Agreement (the "Optionee") an option (the "Option") to purchase the number of
Shares, as set forth in the Notice of Grant, at the exercise price per share set
forth in the Notice of Grant (the "Exercise Price"), subject to the terms and
conditions of the Plan, which is incorporated herein by reference. Subject to
Section 16(c) of the Plan, in the event of a conflict between the terms and
conditions of the Plan and the terms and conditions of this Option Agreement,
the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
------------------
(a) Right to Exercise. This Option is exercisable during its term in
-----------------
accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of an
------------------
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be completed
by the Optionee and delivered to the Secretary of the Company. The Exercise
Notice shall be accompanied by payment of the aggregate Exercise Price as to all
Exercised Shares. This Option shall be deemed to be exercised upon receipt by
the Company of such fully executed Exercise Notice accompanied by such aggregate
Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to the Optionee on the date the Option is exercised with respect to
such Exercised Shares.
-2-
<PAGE>
3. Method of Payment. Payment of the aggregate Exercise Price shall be
-----------------
by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash;
(b) check;
(c) consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan;
(d) surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, AND (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares.
4. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by the Optionee. The
terms of the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
5. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.
6. Tax Consequences. Some of the federal tax consequences relating to
----------------
this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES.
(a) Exercising the Option.
---------------------
(i) Nonstatutory Stock Option. The Optionee may incur
-------------------------
regular federal income tax liability upon exercise of a NSO. The Optionee will
be treated as having received compensation income (taxable at ordinary income
tax rates) equal to the excess, if any, of the Fair Market Value of the
Exercised Shares on the date of exercise over their aggregate Exercise Price. If
the Optionee is an Employee or a former Employee, the Company will be required
to withhold from his or her compensation or collect from Optionee and pay to the
applicable taxing authorities an amount in cash equal to a percentage of this
compensation income at the time of exercise, and may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.
-3-
<PAGE>
(ii) Incentive Stock Option. If this Option qualifies as an
----------------------
ISO, the Optionee will have no regular federal income tax liability upon its
exercise, although the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price will be
treated as an adjustment to alternative minimum taxable income for federal tax
purposes and may subject the Optionee to alternative minimum tax in the year of
exercise. In the event that the Optionee ceases to be an Employee but remains a
Service Provider, any Incentive Stock Option of the Optionee that remains
unexercised shall cease to qualify as an Incentive Stock Option and will be
treated for tax purposes as a Nonstatutory Stock Option on the date three (3)
months and one (1) day following such change of status.
(b) Disposition of Shares.
---------------------
(i) NSO. If the Optionee holds NSO Shares for at least one
---
year, any gain realized on disposition of the Shares will be treated as long-
term capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at least one
---
year after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the Fair Market Value of the Shares acquired on the date of exercise and
the aggregate Exercise Price, or (B) the difference between the sale price of
such Shares and the aggregate Exercise Price. Any additional gain will be taxed
as capital gain, short-term or long-term depending on the period that the ISO
Shares were held.
(c) Notice of Disqualifying Disposition of ISO Shares. If the
-------------------------------------------------
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
an ISO on or before the later of (i) two years after the grant date, or (ii) one
year after the exercise date, the Optionee shall immediately notify the Company
in writing of such disposition. The Optionee agrees that he or she may be
subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
7. Entire Agreement; Governing Law. The Plan is incorporated herein by
-------------------------------
reference. The Plan and this Option Agreement constitute the entire agreement
of the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws, but not
the choice of law rules, of California.
8. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES
---------------------------------
-4-
<PAGE>
AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS
EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND
NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT
CAUSE.
By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
OPTIONEE: INSYNC SYSTEMS, INC.
_______________________________ ______________________________________
Signature By
_______________________________ ______________________________________
Print Name Title
_______________________________
Residence Address
_______________________________
-5-
<PAGE>
CONSENT OF SPOUSE
-----------------
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Option Agreement. In consideration of the
Company's granting his or her spouse the right to purchase Shares as set forth
in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
_______________________________________
Spouse of Optionee
-6-
<PAGE>
EXHIBIT A
---------
1997 STOCK PLAN
EXERCISE NOTICE
Insync Systems, Inc.
1463 Centre Point Drive
Milpitas, CA 95035
Attention: Secretary
1. Exercise of Option. Effective as of today, ________________, 199__, the
------------------
undersigned ("Purchaser") hereby elects to purchase ______________ shares (the
"Shares") of the Common Stock of Insync Systems, Inc. (the "Company") under and
pursuant to the 1997 Stock Plan (the "Plan") and the Stock Option Agreement
dated _____________, 19___ (the "Option Agreement"). The purchase price for the
Shares shall be $_____________, as required by the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company the
-------------------
full purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that Purchaser has
----------------------------
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance (as evidenced by the
---------------------
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in Section 14 of the
Plan.
5. Tax Consultation. Purchaser understands that Purchaser may suffer
----------------
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
6. Entire Agreement; Governing Law. The Plan and Option Agreement are
-------------------------------
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
<PAGE>
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing signed by the Company and Purchaser. This agreement is
governed by the internal substantive laws, but not the choice of law rules, of
California.
Submitted by: Accepted by:
PURCHASER: INSYNC SYSTEMS, INC.
______________________________ ___________________________________
Signature By
______________________________ ___________________________________
Print Name Its
Address: Address:
- ------- -------
______________________________ 1463 Centre Point Drive
______________________________ Milpitas, CA 95035
___________________________________
Date Received
-2-
<PAGE>
EHHIBIT 4.05
INSYNC SYSTEMS, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1997 Employee Stock Purchase
Plan of Insync Systems, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the Common Stock of the Company.
------------
(d) "Company" shall mean Insync Systems, Inc. and any Designated
-------
Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross earnings
------------
only, exclusive of payments for commissions, overtime, shift premium, incentive
compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary which has been
---------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
--------
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each Offering
---------------
Period.
<PAGE>
(i) "Exercise Date" shall mean the last day of each Purchase Period.
-------------
(j) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day on the date of such determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable, or;
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable, or;
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board, or;
(4) For purposes of the Enrollment Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final prospectus included within the registration
statement in Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company's Common Stock (the "Registration
Statement").
(k) "Offering Periods" shall mean the periods of approximately twelve
----------------
(12) months during which an option granted pursuant to the Plan may be
exercised, commencing on the first Trading Day on or after May 1 and November 1
of each year and terminating on the last Trading Day in the periods ending
twelve months later; provided, however, that the first Offering Period under the
Plan shall commence with the first Trading Day on or after the date on which the
Securities and Exchange Commission declares the Company's Registration Statement
effective and ending on the last Trading Day on or before October 31, 1998. The
duration and timing of Offering Periods may be changed pursuant to Section 4 of
this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
----
(m) "Purchase Price" shall mean an amount equal to 85% of the Fair
--------------
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(n) "Purchase Period" shall mean the approximately six month period
---------------
commencing after one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period shall commence on
the Enrollment Date and end with the next Exercise Date.
<PAGE>
(o) "Reserves" shall mean the number of shares of Common Stock covered
--------
by each option under the Plan which have not yet been exercised and the number
of shares of Common Stock which have been authorized for issuance under the Plan
but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock exchanges
-----------
and the Nasdaq System are open for trading.
3. Eligibility.
-----------
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive,
----------------
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after May 1 and November 1 each year, or on such other date as
the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
October 31, 1998. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without shareholder approval if such change is announced at
least five (5) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a
-3-
<PAGE>
subscription agreement authorizing payroll deductions in the form of Exhibit A
to this Plan and filing it with the Company's payroll office prior to the
applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding fifteen percent (15%) of
the Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during a
Purchase Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any
-4-
<PAGE>
withholding required to make available to the Company any tax deductions or
benefits attributable to sale or early disposition of Common Stock by the
Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
---------------
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than 5,000
shares of the Company's Common Stock (subject to any adjustment pursuant to
Section 19) on the Enrollment Date, and provided further that such purchase
shall be subject to the limitations set forth in Sections 3(b) and 12 hereof.
Exercise of the option shall occur as provided in Section 8 hereof, unless the
participant has withdrawn pursuant to Section 10 hereof. The option shall
expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
------------------
provided in Section 10 hereof, his or her option for the purchase of shares
shall be exercised automatically on the Exercise Date, and the maximum number of
full shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier with drawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to
purchase shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on
--------
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal.
----------
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
credited to his or her account shall be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period shall be automatically terminated, and no further payroll deductions for
the purchase of shares shall be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions shall not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement.
-5-
<PAGE>
(b) A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.
11. Termination of Employment.
-------------------------
Upon a participant's ceasing to be an Employee, for any reason, he or
she shall be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's option shall be automatically
terminated. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
13. Stock.
-----
(a) The maximum number of shares of the Company's Common Stock which
shall be made available for sale under the Plan shall be 250,000 shares, plus an
annual increase to be added on January 1 of each year equal to the lesser of (i)
200,000 shares, (ii) 1% of the outstanding shares on such date or (iii) a lesser
amount determined by the Board, subject to adjustment upon changes in
capitalization of the Company as provided in Section 19 hereof. If, on a given
Exercise Date, the number of shares with respect to which options are to be
exercised exceeds the number of shares then available under the Plan, the
Company shall make a pro rata allocation of the shares remaining available for
purchase in as uniform a manner as shall be practicable and as it shall deter
mine to be equitable.
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
--------------
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine
-6-
<PAGE>
eligibility and to adjudicate all disputed claims filed under the Plan. Every
finding, decision and determination made by the Board or its committee shall, to
the full extent permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such partici pant's death subsequent to an Exercise
Date on which the option is exercised but prior to delivery to such participant
of such shares and cash. In addition, a participant may file a written
designation of a beneficiary who is to receive any cash from the participant's
account under the Plan in the event of such participant's death prior to
exercise of the option. If a participant is married and the designated
beneficiary is not the spouse, spousal consent shall be required for such
designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and
in the absence of a beneficiary validly designated under the Plan who is living
at the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each participant
-------
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
---------------------------------------------------------------------
Merger or Asset Sale.
--------------------
-7-
<PAGE>
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), as well
as the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time and for any
reason
-8-
<PAGE>
terminate or amend the Plan. Except as provided in Section 19 hereof, no such
termination can affect options previously granted, provided that an Offering
Period may be terminated by the Board of Directors on any Exercise Date if the
Board determines that the termination of the Plan is in the best interests of
the Company and its shareholders. Except as provided in Section 19 hereof, no
amendment may make any change in any option theretofore granted which adversely
affects the rights of any participant. To the extent necessary to comply with
Section 423 of the Code (or any successor rule or provision or any other
applicable law, regulation or stock exchange rule), the Company shall obtain
shareholder approval in such a manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
21. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall
-9-
<PAGE>
continue in effect for a term of ten (10) years unless sooner terminated under
Section 20 hereof.
24. Automatic Transfer to Low Price Offering Period. To the extent
-----------------------------------------------
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.
-10-
<PAGE>
EXHIBIT A
---------
INSYNC SYSTEMS, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ______________________ hereby elects to participate in the Insync Systems,
Inc. 1997 Employee Stock Purchase Plan (the "Employee Stock Purchase Plan")
and subscribes to pur chase shares of the Company's Common Stock in
accordance with this Subscription Agreement and the Employee Stock Purchase
Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (up to 15%) during the Offering
Period in accordance with the Employee Stock Purchase Plan. (Please note
that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is subject
to shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only): __________
_______________________________________________.
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after the
Exercise Date, I will be treated for federal income tax purposes as having
received ordinary income at the time of such disposition in an amount equal
to the excess of the fair market value of the shares at the time such
shares were purchased by me
<PAGE>
over the price which I paid for the shares. I hereby agree to notify the
----------------------------
Company in writing within 30 days after the date of any disposition of my
-------------------------------------------------------------------------
shares and I will make adequate provision for Federal, state or other tax
-------------------------------------------------------------------------
withholding obligations, if any, which arise upon the disposition of the
------------------------------------------------------------------------
Common Stock. The Company may, but will not be obligated to, withhold from
------------
my compensation the amount necessary to meet any applicable withholding
obligation including any withholding necessary to make available to the
Company any tax deductions or benefits attributable to sale or early
disposition of Common Stock by me. If I dispose of such shares at any time
after the expiration of the 2-year and 1-year holding periods, I understand
that I will be treated for federal income tax purposes as having received
income only at the time of such disposition, and that such income will be
taxed as ordinary income only to the extent of an amount equal to the
lesser of (1) the excess of the fair market value of the shares at the time
of such disposition over the purchase price which I paid for the shares, or
(2) 15% of the fair market value of the shares on the first day of the
Offering Period. The remainder of the gain, if any, recognized on such
disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)______________________________________________
(First) (Middle) (Last)
_______________________________ _______________________________________
Relationship
_______________________________________
(Address)
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<PAGE>
Employee's Social
Security Number: _______________________________________
Employee's Address: _______________________________________
_______________________________________
_______________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_________________________ _______________________________________
Signature of Employee
_______________________________________
Spouse's Signature (If beneficiary
other than spouse)
-3-
<PAGE>
EXHIBIT B
---------
INSYNC SYSTEMS, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Insync Systems,
Inc. 1997 Employee Stock Purchase Plan which began on ____________, 19____ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically termi nated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant:
________________________________
________________________________
________________________________
Signature:
________________________________
Date:__________________________
<PAGE>
EXHIBIT 4.10
INSYNC SYSTEMS, INC.INSYNC SYSTEMS, INC.
EMPLOYEE AND AFFILIATES-STOCK PURCHASE AGREEMENT
------------------------------------------------
1. Parties. This agreement is between Insync Systems, Inc., a California
-------
Corporation (the "Company") and the undersigned employee or affiliated person of
the Company (the "Employee").
2. Stock Subject to Agreement. This agreement applies to all stock of the
--------------------------
Company acquired by the Employee on or after the date of this Agreement.
3. Option in Company- Termination of Employment. Upon the termination of the
--------------------------------------------
Employees' employment for any reason other than his death, the company shall
have the option to purchase any or all of the shares of stock of the Company
which he then owns (the "option shares") . The period during which the Company
may exercise this option shall begin on the date of termination of his
employment (the "record date") and end 90 days after the record date.
4. Option in Company - Death Of Employee. Upon the death of the Employee,
-------------------------------------
during or after the termination of his employment, the Company shall have the
option to purchase any or all of the shares of stock of the Company which he
then owns (the "option stock"). The period during which the Company may exercise
this option shall begin on the date of his death (the "record date") and end 90
days after the company is notified of his death.
5. Option in Company - Transfer by Employee. Before the Employee may transfer,
-----------------
voluntarily or involuntarily, any of the shares of
-1-
<PAGE>
stock of the Company, the Company shall have the option to purchase any or all
of the shares proposed to be transferred (the "option stock"). The period
during which the Company may exercise this option shall begin on the date the
Company is notified of the proposed transfer (the "record date") and end 90 days
after the record date. The term "transfer" includes but is not limited to a
sale, gift or pledge. Section 5 of this agreement shall not apply to stock
which is option stock under section 4 of this agreement.
6. Exercise by Company. The Company shall exercise its option under this
-------------------
agreement by notifying the Employee of its election to purchase a specified
number of option shares. If the Company does not elect to purchase all of the
option shares, the Company shall, before or upon the expiration of its option,
so notify the shareholders of the Company on record on the record date.
7. Option in Shareholder. Each shareholder of the Company of record on the
---------------------
record date (the "shareholder") shall have the option to purchase a portion of
the option shares which the Company does not elect to purchase (the "remaining
option shares") . The period during which a shareholder may exercise his option
shall end 30 days after the Company notifies the Shareholders of its election.
8. Exercise by Shareholder. A shareholder shall exercise his option by
-----------------------
notifying the Company and the employee of his election to purchase a specified
number of time remaining option shares. A shareholder may purchase a portion of
the remaining option shares based on the ratio of the number of shares of stock
of the company owned by him on the record date to the number of shares of stock
of
-2-
<PAGE>
the Company owned by all shareholders an the record date.
9. Shares Not Purchased. After the end of the period during which the Company
--------------------
and the Shareholders may exercise their options to purchase shares of stock of
the Company proposed to be transferred by the Employee, but not more than 180
days after the Company is notified of the proposed transfer, the Employee may
transfer the option shares which the Company and the Shareholders do not elect
to purchase.
10. Purchase Price. The price per share at which option shares may be
--------------
purchased by the Company and Shareholders shall he set annually by the Board of
Directors, which shall consider those facts which in their discretion best
approximate the fair market value of said stock. The Board shall set a per share
value and an appropriate discount rate for the total shares which do not equal
more that 25% of the outstanding shares of stock of the Company. Such price
shall include a value for "goodwill" of the Company which will take into account
increases in business- growth, reputation in the community, work in progress,
promotion activity outstanding, and increased networking relationships as an
asset of the business. The fixed price set forth by the Board shall be binding
on the Employees for all purposes of this Agreement. In the event that the Board
has not determined a stock value within 12 months prior to the exercise date,
any Shareholder may request that a study be undertaken to arrive at a new fixed
price to be determined by the Board of Directors. If the Board fails to meet
within 15 days after the shareholder's request for a valuation to
-3-
<PAGE>
arrive at a new fixed price then the matter will be submitted at the direction
of the Board to arbitration or appraisal such arbitration or appraisal to be
effected in accordance with this Article. Within ten (10) days the Board shall
select whether arbitration or appraisal value shall be used and select 1
arbitrator or appraiser. The selling Shareholder shall give written notice to
the Board of Directors of the acceptability of the appointed person. If the
Shareholder fails to notify the Board of the appointment of its arbitrator or
appraiser, as aforesaid, within or by the time above specified, then the person
appointed by the Board shall act. If the Shareholder objects to said person
appointed then the arbitrator or appraiser chosen by the Board shall within tan
(10) days appoint a second arbitrator or appraiser and the two by mutual
agreement shall appoint a third. In the event the selecting arbitrators are
unable to agree upon such appointment within ten (10) days after the time
aforesaid, then any party, on behalf of all, may request such appointment of the
arbitrators or appraisers be made by the United States District Judge for the
District in which San Jose, California is located. In the event of the failure,
refusal or inability of any arbitrators or appraisers to act, a new arbitrators
or appraisers shall be appointed in his stead, and the decision of the
arbitrators or appraisers so chosen shall be given within a period of thirty
(30) days after his appointment. The decision of the arbitrators or appraisers
so appointed and acting hereunder concur shall in all cases be binding and
conclusive upon
-4-
<PAGE>
the parties. Each party shall pay one-half (1/2) of the fees and expenses. All
hearings and proceedings held and all investigations and action taken by the
arbitrators or appraiser(s) shall take place in San Jose, California.
All arbitration proceedings shall be conducted in accordance with the
applicable rules of the American Arbitration Association then in effect. Any
award rendered therein shall be final and binding on all parties and judgment
may be entered thereon in any court having jurisdiction thereof. The arbitrator
(s) may, in their discretion, declare a "winner" in the arbitration.
The appraisal shall be conclusively binding on all of the parties
concerned. In the event the Corporation can legally make a redemption of the
terminated Shareholders share, the Shareholder may assign to the Corporation any
right and duty herein provided at a price determined by the mutual agreement of
the Shareholders where the Shareholders are able to mutually agree an a price.
11. Closing. The purchase price shall be paid by the purchaser to the employee
-------
and the shares of stock to be purchased shall be delivered by the Employee to
the purchaser not more than 30 days after the end of the period during which the
shareholders may exercise their options. The closing shall take place at the
main office of the Company unless the Employee and the purchaser agree
otherwise.
12. Installment Purchase. At the election of the purchaser, 80% of the
--------------------
purchase price may be deferred and paid in four (4) annual installments each
equal to 20% of the purchase price. Interest
-5-
<PAGE>
shall be paid annually on the unpaid balance at the rate of 7%. The debt of the
purchaser shall be reflected in a note and secured by the shares of stock which
the purchaser has not yet paid for. Certificates will be issued when payments
are completed.
13. Termination of Provisions. The provisions of this Section shall terminate
-------------------------
and cease to have effect upon the earliest to occur of (i) the consummation of a
firm commitment underwritten public offering pursuant to an effective
registration statement under the securities Act of 1933, as amended (the "Act")
covering the offer and sale of the Company's common stock, (ii) the date upon
which the company becomes a reporting company under either section 13 or section
15(d) of the Securities Exchange Act of 1934, as amended, or (iii) the closing
date of a sale of assets or merger of the Company or other acquisition
transaction pursuant to which the shareholders of the Company receive securities
of a buyer whose shares are publicly traded.
14. Capital Changes. If, from time to time during the term of this agreement:
---------------
(a) there is any stock dividend or liquidating dividend to cash and/or
property, stock split, or other change an the character or amount of any of the
outstanding securities of the Company; or
(b) there is any liquidation or consolidation or merger of the Company with
another corporation;
then, except as otherwise expressly provided herein, in such event, any and all
new, substituted or additional securities, or other property, other than cash,
to which Purchaser is entitled by reason
-6-
<PAGE>
of Purchaser's ownership of the shares shall be immediately subject to this
agreement and be included in the word "shares" for all purposes with the same
force and effect as the shares presently subject to the purchase option, right
of first refusal and other terms of this Agreement. While the aggregate option
price shall remain the same after each such event, the option price per share
upon execution of 'the purchase option shall be appropriately adjusted. In the
event of any cash divided or liquidating distribution made with respect to the
shares, the Company may apply the amounts thereof against any indebtedness owed
by Purchaser to the company.
15. Securities Law Compliance.
--------------------------
(a) Exemption from Registration. The shares have not been registered under
the Act and are being issued to purchaser in reliance upon the exemption from
such registration provided by Rule 701 of the Securities and Exchange Commission
for stock issuances under compensatory benefit arrangements such as this
agreement. Purchaser hereby acknowledges receipt of a copy of this agreement.
The shares have not been qualified under the California Corporate Securities Law
of 1968 and a-re being issued to purchaser in reliance upon the exemption from
qualification provided by section 25102 (f) of the Corporations Code.
(b) Investment Representations. As an inducement to the Company to issue
the shares to purchaser, and in order to establish the suitability of purchaser
for such an investment, purchaser hereby represents and warrants to the company
as follows;
-7-
<PAGE>
(i) investment Intent. Purchaser is aware of and familiar with the
Company's business affairs and financial condition and has acquired sufficient
information about the company to reach a knowledgeable and informed decision to
acquire the shares. Purchaser is acquiring the shares for investment for his own
account, not for resale, without any intention of or view toward or for
participant, directly or indirectly, in a distribution of the shares or any
portion thereof.
(ii) Representatives. Purchaser has consulted with such professional
advisors (the "representatives"), if any, as purchaser has seen fit in
connection with this proposed
investment.
(iii) Experience. Purchaser and Purchaser's representative, if any, have
such knowledge and experience in financial and business matters that Purchaser
is capable of evaluating the merits and risks of investment in the shares,
(iv) Risks. Purchaser understands that an investment in the Company is
speculative, that any possible profits therefrom are uncertain, and the
Purchaser must bear the economic risks of the investment in the Company for an
indefinite period of time. Purchaser is able to bear these economic risks and to
hold the shares for an indefinite period.
(v) Information. Purchaser and Purchaser's representative, if any, have
received all information and data
-8-
<PAGE>
with respect to the Company which Purchaser or Purchaser's representative have
requested and have deemed relevant in connection with an evaluation of the
merits and risks of this investment in the Company, and do not desire any
further information or data with respect to the Company prior to the purchase of
the shares.
(vi) Domicile. Purchaser is a bona fide resident and domiciliary, not a
temporary transient resident, of and Purchaser's principal residence is the
State of California, and Purchaser does not have any present intention of moving
his principal residence from California.
(vii) Legends. Purchaser understands and agrees that (i) the legends set
forth in Section 16 will be placed on the certificates evidencing the shares and
on the certificates issued to transferees; (ii) the stock records of the Company
will be noted with respect to such restrictions; and (iii) the Company will not
be under any obligation to register the Shares or to comply with any exemption
available for sale of the shares without registration.
(viii) Restrictions on Resale. Purchaser understands that, under relevant
securities law requirements, additional restrictions on the transferability of
the shares will apply, unless Company, in its discretion, otherwise determines.
Purchaser understands that the shares must be held indefinitely unless they are
subsequently registered under the Act or an exemption from such registration is
available. The
-9-
<PAGE>
Company is under no obligation to so register the shares . Purchaser
understand that Rule 701 and Rule 144 of the Securities and Exchange
Commission permit limited public resale of securities acquired in non-
public offering subject to satisfaction of certain conditions Purchaser
understands. that the Company may not be satisfying, and is not obligated
to satisfy, any requirement or Rule 144 at such time as Purchaser might
wish to sell any of the shares, and if so, Purchaser might be precluded
from selling any of the shares under Rule 144. Purchaser further understand
that 90 days after the company becomes subject to the reporting
requirements under Section 13 or Section 15(d) of the Securities Exchange
Act of 9134, the shares issued under Rule 701 may be resold by a person who
is not an affiliate of the Company without compliance with many of such
Rule 144 conditions (such as the current public information, holding
period, volume limitation and notice filing requirements) and by a person
who is an affiliate of the Company without any holding period requirements
(subject to the other limitations set forth in the Agreement).
(c) Further limitations on Disposition. Without in any way limiting the
representations set forth above, Purchaser further agrees that Purchaser shall
in no event make any disposition of any portion of the shares unless and until:
(i) (A) there is in effect a registration statement under the Act
covering such proposed disposition and such
-10-
<PAGE>
disposition is made in accordance with said registration statement; or (B)
(1) Purchaser shall have notified the Company of the proposed disposition
and shall have furnished the Company with a detailed statement of the
circumstances surrounding the proposed disposition, (2) Purchaser shall
have furnished the Company with an opinion of the Purchaser's counsel to
She effect that such disposition will not require registration of such
shares under the Act and. (3) such opinion of the Purchaser's counsel shall
have been concurred in by counsel for the Company and the Company shall
have advised Purchaser of such concurrence; and
(ii) the shares proposed to be transferred are no longer subject to
the purchase option and there has been compliance 'With the right of first
refusal provisions contained in Section 3.
16. Legends an Shares. Each certificate representing the shares shall have
----------------
conspicuously printed on it the following legends:
(a) "THESE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") I OR THE
SECURITIES LAWS OF VARIOUS STATES AND HAVE BEEN ISSUED AND SOLD PURSUANT TO AN
EXEMPTION FROM THE ACT I AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED
BY THE HOLDER THEREOF AT ANY TIME EXCEPT (1) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FILED UNDER THE ACT COVERING THESE SHARES, OR (2) UPON
DELIVERY TO THE CORPORATION OF AN OPINION OF COUNSEL SATISFACTORY TO THE
CORPORATION THAT THESE SHARES MAY BE
-11-
<PAGE>
TRANSFERRED WITHOUT REGISTRATION."
(b) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AND RIGHTS OF FIRST REFUSAL
AS SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER
OR HIS PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
OFFICE OF THE CORPORATION."
(c) Any legend required to be placed thereon by the California Commissioner
of Corporations or required by the applicable blue sky laws of any state .
17. Valuation of shares. Purchaser understands that the shares have been
-------------------
valued by the board of directors for the purpose of this sale, and that the
Company believes this valuation represents a fair attempt to reaching an
accurate appraisal of their worth. Purchaser also understands, however, that the
Company can give no assurances that such price is in fact the fair market value
of the shares and that it is possible that the Internal Revenue services would
successfully assert that the value of the shares on the date of purchase is
substantially greater than so determined. If the Internal Revenue Service were
to succeed in a determination that the shares had value greater than the
purchase price, the additional value would constitute ordinary income as of the
date of its receipt. The additional taxes (and interest) due would be payable by
purchaser, and there is no provision for the company to reimburse purchaser for
that tax liability. Purchaser assumes all responsibility for such potential tax
liability.
-12-
<PAGE>
18. Section 83(b) Election.
----------------------
(a) Purchaser understands that Section 83 of the Internal Revenue Code
of 1986, as amended (the "Code") taxes as ordinary income the difference between
the amount paid for the shares and the fair market value of the shares as of the
date any restrictions of the shares lapse. In this context, "restriction" means
the right of the Company to buy back the shares pursuant to the purchase option.
In the event the Company has registered under the Securities Exchange Act of
1934, "restriction" with respect to officer, directors and 10% shareholders also
means the six-month period after the purchase of the share during which sales of
certain securities by such officers, directors, and 10% shareholders would give
rise to liability under Section 16(b) of the Exchange Act. Purchaser understands
that he may elect to be taxed at the time the shares are purchased rather than
when and as the purchase option or six-month section 16(b) period expires, by
filing an election under Section 83(b) of the Code with the Internal Revenue
Service within thirty (30) days after the date of purchase. Even if the fair
market value of the share equals the amount paid for the shares (and thus no tax
is payable), the election must be made to avoid adverse tax consequences in the
future. Purchaser understand that failure to make this filing in a timely
manner will result in the recognition of ordinary income by Purchaser, as the
purchase option lapses or after the lapse of the six-month section 16(b) period,
on any difference between the purchase price and the fair market value of the
shares at the time such restrictions lapse.
-13-
<PAGE>
PURCHASER ACKNOWLEDGES THAT IT IS PURCHASER'S SOLE RESPONSIBILITY AND
NOT THE COMPANY'S TO TIMELY FILE THE ELECTION UNDER SECTION 83 (b) EVEN IF
PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON
PURCHASER'S BEHALF,
(b) If Purchaser makes any tax election relating to the treatment of
the shares under the Code, at the time of such election Purchaser shall promptly
notify the Company of such Election.
19. Market Lock Up.
--------------
(a) Lock up Period. In connection with any underwritten public
offering by the Company of its equity securities pursuant to an effective
registration statement filed under the Act, including the Company's initial
public offering, Purchaser shall not sell, make any short sale of, loan,
hypothecate, pledge, grant any option of the purchase of, or otherwise dispose
or transfer for value or otherwise agree to engage in any of the foregoing
transactions with respect to any of the shares without the prior written consent
of the Company or its underwriters, for such period of time from and after the
effective date of such registration statement as may be requested by he Company
or such underwriters; provided, however, that in no event shall such period
exceed one hundred eighty (180) days. This section 7(c) shall only remain in
effect for the two year period immediately following the effective date of the
Company's initial public offering and shall thereafter terminate and cease to be
in force and effect.
(b) Limitation. Purchaser shall be subject to the market lock
-14-
<PAGE>
up provisions of this Section 7 (c) provided and only if the officers and
directors of the Company are also subject to similar arrangements.
(c) Stop Transfer. In order to enforce the provisions of this paragraph
the Company may impose stop-transfer instructions with respect to the shares
until the spend of the applicable lock up period.
20. Employment at Will. The parties acknowledge that Purchaser's employment
------------------
relationship with the Company is at the will of either party, unless otherwise
agreed in writing, and that nothing in this Agreement shall effect in any manner
whatsoever the right or power of Purchaser or the Company, or a parent or
subsidiary of the Company, to terminate Purchaser's employment for any reason,
with or without cause. This Agreement does not constitute an express or implied
promise of continued employment for the vesting period or any other period.
21. Rights as a Shareholder. Subject to the provisions and limitations hereof,
-----------------------
Purchaser may, during the term of this Agreement, exercise all rights and
privileges of a shareholder of the company with respect to the Shares.
22. Additional Actions. The parties will execute such further instruments and
------------------
take such further action as may reasonably be necessary to carry out the intent
of the agreement.
23. Notices. Any notice required or permitted hereunder shall be
-------
given in writing and shall be deemed effectively given upon personal delivery or
upon deposit in the United States Post office,
-15-
<PAGE>
by regular or certified mail with postage and fees prepaid, addressed, if to
Purchaser, at his address set forth on the signature page hereto and, if to the
Company, at the address of its principal corporate offices (attention:
President) or at such other address as such party may designate by tan days
advance written notice to the other party.
24. Assignment. The Company may assign its rights and delegate
----------
its duties under this agreement. If any such assignment or delegation requires
consent of the California Commissioner of Corporations, the parties agree to
cooperate in requesting such consent. This agreement shall inure to the benefit
of the successors and assigns of the company and, subject to the restrictions on
transfer herein set forth, be binding upon purchaser, purchaser's heirs,
executors, administrators, successors and assigns.
25. No Waiver. The failure of the company (or its assignees) in any instance
---------
to exercise the purchase option or the failure of the company (or its assignees)
in any instance to exercise the right of first refusal, shall not constitute a
waiver of any other repurchase rights and/or rights of first refusal that may
subsequently arise under the provisions of this Agreement or any other agreement
between the Company and purchaser. No waiver of any breach or condition of this
agreement shall be deemed to be a waiver of any other or subsequent breach or
condition, whether of like or different nature.
26. Cancellation of Shares. If the Company (or its assignees)
----------------------
-16-
<PAGE>
shall make available, at the time and place and in the amount and form provided
in this agreement, the consideration for the shares to be repurchased in
accordance with the provisions of this agreement, then from and after such time,
the person from whom such shares are to be repurchased shall no longer have any
rights as a holder of such shares (other than the right to receive payment of
such consideration in accordance with this agreement), and such shares shall be
deemed purchased in accordance with the applicable provisions hereof and the
company (or its assignees) shall be deemed the owner and holder of such shares,
whether or not the certificates therefor have been delivered as required by this
agreement.
27. Entire Agreement. This Agreement (constitutes the entire contract between
----------------
the parties hereto with regard to the subject matter hereof.
28. Governing Law. This agreement shall be governed by, and construed in
-------------
accordance with, the laws of the State of California, as such laws are applied
to contracts entered into and performed in such State.
29. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
30. Severability. If any provision of this Agreement is held by a court of
------------
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nevertheless continue in full force and effect without being
impaired in any way and
-17-
<PAGE>
shall be construed in accordance with the purpose and terms of this Agreement.
31. Amendments. This agreement may not be amended, modified or supplemented
----------
except by a writing executed by both parties.
32. Independent Counsel. Employee acknowledges that he has or has been advised
-------------------
to have the benefit of independent legal counsel of his own choosing on
reviewing this agreement.
33. Headings. The section headings contained in this agreement are included
--------
for convenience of reference only and are not intended by the parties to be a
part of or to affect the meaning or interpretation of this Agreement.
THE VESTING OF SHARES PURSUANT TO THIS AGREEMENT IS EARNED BY CONTINUED
EMPLOYMENT, AND THE COMPANY'S RIGHT TO REPURCHASE UNINVESTED SHARES UPON
TERMINATION IS ABSOLUTE WHETHER THE TERMINATION IS VOLUNTARY OR INVOLUNTARY OR
WITHOUT CAUSE.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
-18-
<PAGE>
EXHIBIT 10.05
CONSULTING SERVICES AGREEMENT
-----------------------------
THIS AGREEMENT is made effective as of the 1ST day of June, 1994 by and
between INSYNC SYSTEMS, INC., a California corporation with offices at 2070 De
LA Cruz boulevard, Santa Clara, CA (Insync"), and. KAIROS, INC., a Delaware
corporation with offices at Suite 3222,1700 Market Street, Philadelphia,
Pennsylvania ("Kairos").
RECITALS:
---------
A. Kairos, Inc. practices various strategies and programs to help
businesses design more competitive enterprises and is in the business of
providing business design and consulting services.
B. Insync desires to engage the services of Kairos, and Kairos desires to
accept such engagement in providing to Insync a variety of design and consulting
activities and advice, including the development of capabilities and design of
business processes, on the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the promises and the mutual covenants
and conditions contained herein, the parties intending to be legally bound
hereby, agree as follows:
AGREEMENT
1. ENGAGEMENT. The Company hereby engages Kairos as an independent
----------
contractor to provide the business design and consulting services to Insync as
se forth hereafter; and Kairos hereby accepts such engagement and agrees to
perform such services, all in accordance with the terms and conditions set forth
herein.
2. DUTIES OF KAIROS. Kairos shall provide such business design and
----------------
consulting services as described below and as set forth move particularly in the
document "Becoming a Flexible Enterprise: Improving Business Processes in
Insync" presented to Stan Leopard dated June 3, 1994 Exhibit A), previously
delivered by Kairos to Insync.
<PAGE>
3. COMPENSATION TO KAIROS.
----------------------
(a) For the engagement, Insync will pay to Kairos for services
rendered hereunder not less than two hundred and seventy thousand ($270,000)
Dollars. Our fee for the first phase of the project (the first six to eight
months) will be $45,000 per month, We expect the total amount of the first phase
to be $270,000. based on a six month project, but if we extend to eight months
the $45,000/month fee will continue. The fee for this project is based on a
planned return to Insync of one million dollars. Monthly payments will be
according to the following schedule:
<TABLE>
<CAPTION>
Month worked Fee
- ------------ ---
<S> <C> <C>
June $ 20,000
July $ 25,000
August $ 35,000
September 150,000
October $ 61,000
November $ 75,000
December $ 45,000 (If Phase I continued, etc.)
</TABLE>
The professional fees for this project are based on a partnership" between
Insync and Kairos in producing the results of the project and sharing as
partners in the financial rewards of the results. We both agree that Kairos
total fees and expenses for phase 1 of the project will be 50% of the
improvement in financial results attributable to the project for either (1) the
period from the beginning of the project through 12/31/95 or (2) a period equal
to the time engaging in the project plus six months, whichever is longer. We
distinguish fees as consisting of base fees and bonus fees. The base fees will
be paid according to the schedule for phase I and will be specified for phase 2
at the beginning of that phase. Base fees are expected to be funded from
financial improvements attributable to the project within ninety days of the
project initiation. The bonus fees for phase I will be paid at the end of phase
1, with 50% of the bonus to be paid in warrants, up to a limit of 50,000
warrants, the rest in cash, with the value of the warrants to be determined
later Bonus fee payout far phase 2 will be negotiated later. The bonus fees due
will be determined by subtracting the base fees and expenses paid by Insync for
phases I and 2 from the financial improvements of these phases of the project
respectively. For example, Kairos will receive a phase I bonus payment that is
50% of the improvement in profitability that is attributable to the project
minus the base fees of $270,000 and minus expenses incurred over the project.
Insync agrees to pay within fifteen days of invoice date.
(b) Out-of-pocket expenses for travel, lodging, meals and costs that
are necessary for Kairos' performance of the work promised in the engagement
(including but not limited to telephone and Fedex-type charges), will be billed
separately and payable monthly in accordance with invoices delivered by Kairos
to Insync, for the duration of the engagement. Such expenses will not exceed $
10,000 per month without renegotiation between Kairos and Insync.
<PAGE>
4. DURATION AND TERMINATION. This Agreement shall remain in effect until
------------------------
the services set forth in the letter shall have been performed. However,
notwithstanding anything heretofore or hereafter, either party shall have the
right to terminate this Agreement upon ten (10) days' written notice to the
other party. On the date of effective termination, the compensation shall be
prorated on the basis of work performed to the date of effective termination.
Kairos shall refund any excess amount paid by Insync, or Insync shall pay any
amount due Kairos, within fifteen (15) days of the date of effective
termination.
5. NATURE OF RELATIONSHIP. In making and performing this Agreement, the
----------------------
parties are acting and shall act as independent contractors. Nothing in this
Agreement shall be deemed to create an agency, joint venture or partnership
relationship between the parties hereto. At no time shall either party make
commitments or incur any charges or expenses for or in the name of the other
party.
6. WAIVER. No waiver by either party of any violations or non-
------
performance by the other party of any of its obligations, agreements, or
covenants hereunder shall be deemed to be a waiver of any subsequent violation
or non-performance of the same or any other covenant, agreement or obligation,
nor shall any forbearance by either party be deemed a waiver by such party of
its rights or remedies with respect to such violation or non-performance.
7. BROKERAGE FEES. Both parties represent and warrant to each other that
--------------
all negotiations relative to this Agreement have been carried on by then
directly without the intervention of any person, firm or corporation. Each party
will indemnify the other and hold such other party harmless against and in
respect of any claims for brokerage or other commissions relative to this
Agreement or the transactions contemplated hereby made by any person, firm or
corporation claiming though it or them.
8. SEVERABILITY. If any provision of this Agreement or the application
------------
thereof, is adjudicated to be invalid or unenforceable such invalidity or
unenforceability shall not affect any other provision of this Agreement which
can be given effect without the invalid or unenforceable provision or
application, and to this end, the provisions of this Agreement shall be
severable.
9. TITLES AND LANGUAGE. The titles given the Sections and Paragraphs of
-------------------
this Agreement are solely for convenience of reference and shall not be
construed as having any bearing upon the interpretation or meaning of the
provisions of this Agreement. The language of this Agreement shall be: construed
to be language which the parties hereto have mutually chosen to express their
intentions on the subject matter thereof, and no rule of strict construction
shall be applied to such language as to any party hereto.
<PAGE>
10. COUNTERPART EXECUTION. This Agreement may be executed in one or more
---------------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11. FORCE MAJEURE. Neither Insync nor Kairos shall be deemed in default
-------------
of any of its obligations under this Agreement if its performance of obligations
hereunder are delayed or become impossible or impracticable by reason of any act
of God, war, fire, earthquake, strike, sickness, accident, civil commotion,
epidemic. act of government or of government agencies or officers, or any other
cause beyond such party's control. Such performance of obligations shall be
excused for the period of the delay and for a reasonable time thereafter.
12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. During the term of this
-----------------------------------------
Agreement the parties may disclose to each other certain proprietary
information, trade seats, technical data, and know-how, including but not
limited to design drawings, processes, product plans or identities, and
marketing or financial information, not generally known in the marketplace and,
in the case of Kairos, certain proprietary strategies and programs, including
certain research papers, graphics, charts, transparencies/foils, case studies,
transcripts, research projects, video and/or auto tapes and magnetic
reproductions of text/graphics (collectively, the "Confidential Information"),
The parties agree that neither of them, nor any of their respective employees,
agents, or representatives, will in any fashion or for any purpose, now or in
the future, use, divulge, or disclose the Confidential Information, except to
carry out the discussions concerning, and the undertaking of this Agreement. The
parties further agree that they will take all reasonable measures to protect the
confidentiality of, and avoid the present or future disclosure or use of the
Confidential Information so as to prevent it from entering the public domain or
falling into the possession of persons other than those authorized by this
Agreement who have access to it. Only those employees or agents of the parties
who are authorized to participate in discussions between the parties or who have
been advised of its confidential nature shall be permitted to have access to the
other party's Confidential Information: Insync principals are free to use the
know-how they gain from this engagement for the benefit of Insync or other
businesses in which they might engage.
Insync, its agents, servants, principals and employees, now and forever
more, shall likewise, in, addition to anything heretofore, refrain from doing
any of the following acts with respect to Kairos' Confidential Information or
related technology:
a) communicate Kairos' Confidential Information or related
technology to any person or entity, outside of Insync;
b) use Kairos' Confidential Information or related technology for
its private benefit or for the benefit of any person or entity, except as
strictly contemplated by the terms of this Agreement;
c) use Kairos' Confidential. Information or related technology to
provide or sell business design services to any other person or entity, whether
affiliated with Insync or not;
<PAGE>
d) use Kairos' Confidential Information or related technology in any
way whatsoever which if so used or divulged, would either damage Kairos or aid
or benefit a competitor of Kairos.
e) exchange, transfer, sell, assign, incorporate or franchise for
profit or in any other fashion, whether for profit or not, Kairos' Confidential
Information and related technology with or to any other individual or entity,
now or in the future.
The terms of this section shall survive the completion and/or
termination of this Agreement, and the parties acknowledge that the breach of
any of this section's terms at any time hereafter will give rise to irreparable
harm inadequately compensable in damages, Accordingly, the parties may seek and
obtain injunctive relief against the breach or threatened breach of any of the
within terms addition to any legal or equitable remedies which may be available.
13. NOTICES. All notices and other communications provided for in this
-------
Agreement shall be given or made by telex, telecopy, telegraph, cable, certified
or registered mail (return receipt requested), or delivered personally or by an
internationally recognized overnight courier service to the address set forth
below (or such other address as may be designated by any method permitted by
this Paragraph 13). All such communications shall be deemed to have been duly
given when transmitted by telex or telecopier (if a copy thereof is also mailed
to the recipient, certified or registered mail, postage prepaid), or personally
delivered or delivered by cable, telegraph or, internationally recognized
overnight courier services, or five (5) days after mailing, postage prepaid, to
the addresses set forth below:
If to Insync: INSYNC: SYSTEMS INC.
2070 De La Cruz Boulevard
Santa Clara CA 95050
Attn: Stan Leopard
If to Kairos: KAIROS, INC.
Suite 3222, 1700 Market Street
Philadelphia, Pa. 19103
Attn: Russell G. Redenbaugh
With additional to: RICHARD MAX BOCKOL, ESQ.
#253 BalaPointe Centre
111 Presidential Blvd.
Bala Cynwyd, Pa. 19004
<PAGE>
14. GOVERNING LAW. This Agreement shall be construed and interpreted in
--------------
accordance with the laws Of the Commonwealth of Pennsylvania without regard to
its provisions concerning conflict of laws,
15. ARBITRATION. Any and all disputes between the parties arising out of
-----------
the subject matter of this Agreement or the interpretation of the rights and
duties of the parties as provided hereunder or the damages arising out of any
breach of this Agreement by either party, shall be submitted to arbitration in
Philadelphia, Pennsylvania, under the Commercial Arbitration Rules; of the
American Arbitration Association. The decision of the arbitrator or arbitrators
shall be final and binding upon the parties, and judgment on the arbitration
award may be entered by any court of competent jurisdiction for purposes of
enforcement of the award. The prevailing parry in the arbitration shall be
entitled to an award of its reasonable attorneys' fees and expenses in
connection with the arbitration.
16. AMENDMENTS. No amendments or additions to this Agreement shall be
----------
binding unless in writing and signed by both parties.
17. ENTIRE AGREEMENT. This instrument constitutes the entire agreement
----------------
between the parties and supersedes all prior understandings, previous
negotiations, and any memoranda or understanding with respect to the subject
matter hereof.
18. BINDING EFFECT. This Agreement shall be binding upon and shall inure
--------------
to the benefit of the parties hereto and their respective successors and
assigns.
<PAGE>
19. DISCLAIMER. EXCEPT FOR THOSE WARRANTIES, IF ANY, SET FORTH IN THIS
----------
AGREEMENT, NEITHER INSYNC, NOR KAIROS MAKES ANY WARRANTIES EXPRESS OR IMPLIED,
INCLUDING WARRANTIES OF OR MECHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
IN NO EVENT SHALL INSYNC OR KAIROS BE LIABLE FOR THE OTHER PARTY'S LOSS OF
PROFITS, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF PERFORMANCE
OR NON-PERFORMANCE OF ANY PROVISION OF THIS AGREEMENT.
IN WITNESS 0F, the parties have caused this Agreement to be executed as of
The date written below.
KAIROS, INC.
Attest: /s/ Signature unreadable By: /s/ Russell G. Redenbaugh
Secretary Signature
Title: President
Printed Name: Russell G. Redenbaugh
Date: 7/6/94
INSYNC SYSTEMS, INC.
Attest: /s/ Signature unreadable By: /s/ Stan Leopard
Secretary Signature
Title: Chairman
Printed Name: Stan Leopard
Date: 7/6/94
<PAGE>
EXHIBIT 10.07
EQUITY AGREEMENT
This agreement is made on May 27, 1996, between Insync Systems, Inc., a
California Corporation ("INSYNC") and Stanley Leopard, C.E.O. of Insync Systems,
Inc. ("Leopard").
1. RECITALS
--------
INSYNC and Leopard desire to enter into a binding agreement to be co-investors
in the purchase of one full-use Membership at Palo Alto Hills Golf and Country
Club ("Membership") under the terms and conditions set forth herein.
In consideration of the mutual promises set forth below in the body of this
agreement, INSYNC and Leopard agree as follows:
2. TERMS
-----
a. Both INSYNC and Leopard will each pay fifty percent (50%) of the total
Membership purchase price of $100,000, including sales or other taxes
(if any), and exclusive of periodic fees and/or dues.
b. Both INSYNC and Leopard will each acquire a fifty percent (50%) equity
interest in the Membership, which shall be issued in Leopard's name;
however, for so long as both Parties continue to own their respective
fifty percent (50%) equity interest in the Membership, Leopard shall
have the sole and exclusive right to the use and enjoyment of the
Membership privileges, and INSYNC shall have an equity interest only
with no right to the use and enjoyment of the Membership privileges.
c. Leopard shall be responsible for the payment of all periodic fees,
dues, and/or costs resulting from or attributable to the ownership or
use of the Membership, including but not limited to monthly dues, use
fees and taxes.
3. TERMINATION
-----------
Equity ownership in the Membership by both parties shall be retained until one
of the following events occurs:
a. In the event that Leopard desires to sell or otherwise transfer any
portion of his equity interest in the Membership, the entire,
undivided Membership shall be sold to the first bona-fide offeror
willing and able to pay current market value for the Membership.
Leopard shall be responsible for administering and effectuating the
sale, as well as collecting the proceeds of the sale, and remitting to
INSYNC its pro-rata share of the proceeds.
1
<PAGE>
b. In the event that Leopard's employment with INSYNC terminates for any
reason, voluntarily or involuntarily, Leopard shall have the right, at
his option, to purchase INSYNC's equity interest in the Membership for
a period of ninety (90) days following his termination date. Should
Leopard exercise this right of first refusal, the price for the
purchase of INSYNC's equity interest will be at the higher of INSYNC's
cost less any transaction fees or current market value (net of
transaction fees). If Leopard declines to exercise his right of first
refusal to purchase INSYNC's equity interest within ninety (90) days
of his termination, the entire, undivided Membership shall be sold to
the first bona-fide offeror willing and able to pay current market
value for the Membership. Leopard shall be responsible for
administering and effectuating the sale, as well as collecting
proceeds of the sale, and remitting to INSYNC its pro-rata share of
the proceeds.
c. Any sale of the entire Membership, or either Party's equity in the
same, shall be at the current market value of the Membership or equity
in the Membership as of the date of the sale. "Current market value"
shall be determined as follows, in the following order:
1. The Parties shall first attempt to ascertain the sale price of
comparable PAH Country Club memberships sold within the previous
ninety (90) days, and "current market value" shall be the most
recent sale price between a willing buyer and seller, less
transfer fees at the Club's then current rate;
2. If no such sales occurred within the previous ninety (90) days,
or if the Parties are not able to ascertain the sale price(s),
then the Parties shall attempt in good faith to reach a mutual
agreement on the "current market value" to be used;
3. If the Parties are unable to reach a mutual agreement on the
"current market value," the most recent price of actual
membership sale which can be determined shall be used in the
calculation of Current Market Value.
d. Upon the sale of the entire, undivided Membership to a third party,
INSYNC shall bear all transaction fees associated with the sale, to
expressly include all costs and fees payable to the Country Club as a
result of such sale or transfer of ownership. INSYNC shall be entitled
to any deduction or other tax benefit which may be realized from the
payment of such transaction fee. INSYNC and Leopard will share pro-
rata in all net proceeds of the sale, including any losses or profits
from the sale.
e. Each party shall be entitled/obligated to take fifty percent (50%) of
any local, state, or federal tax benefit or liability incurred or
realized as a result of the profit or loss from the sale of the
Membership.
2
<PAGE>
Executed on the date first written above in Milpitas, California.
/s/ Stanley Leopard 5/21/96
- --------------------------------------------- ------------------
Stanley Leopard Date
/s/ Terence J. Griffin 5-28-96
- --------------------------------------------- ------------------
Terence J. Griffin, Insync Systems, Inc. Date
3
<PAGE>
EXHIBIT 11.01
INSYNC SYSTEMS, INC.
STATEMENT REGARDING COMPUTING PRO FORMA
NET INCOME (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------
<S> <C> <C>
Net income (loss).............................. $(6,508) $ 310
Accretion of redeemable preferred stock........ (147) (74)
------- ------
Net income (loss) applicable to common
shareholders.................................. $(6,655) $ 236
======= ======
Weighted average common stock outstanding...... 5,317 5,109
Weighted average redeemable preferred stock
outstanding................................... 2,089 2,353
Weighted average of warrants and options
outstanding................................... -- 541
Common share equivalents for stock options and
warrants issued at prices below the assumed
initial public offering price during the
twelve month period prior to the initial
filing of the related registration statement.. 211 211
------- ------
Total pro forma shares used in per share
computation................................... 7,617 8,214
======= ======
Pro forma net income (loss) per share.......... $ (0.87) $ 0.03
======= ======
</TABLE>
<PAGE>
EXHIBIT 23.01
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULES
To the Board of Directors and Shareholders of
Insync Systems, Inc.
We consent to the use in this Registration Statement of Insync Systems, Inc.
on Form S-1 of our reports dated September 16, 1997 (September 29, 1997 as to
Note 13) and October 20, 1995 (January 2, 1996 as to Note 9) relating to the
financial statements of Insync Systems, Inc. and Pullbrite, Inc., respectively,
appearing in the Prospectus, which is a part of this Registration Statement,
and to the references to us under the headings "Selected Financial Data" and
"Experts" in such Prospectus.
Our audits of the financial statements of Insync Systems, Inc. referred to in
our aforementioned report also include the financial statement schedule of
Insync Systems, Inc., listed in Item 16.(b). The financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
Deloitte & Touche LLP
San Jose, California
September 29, 1997
